Community choice aggregators in 19 counties in California have become an important market for independent generators. Representatives of three California CCAs talked at an American Wind Energy Association finance conference in San Francisco in October about their needs for additional power and some of the challenges they face. The panelists are Siobhan Doherty, director of power resources for Peninsula Clean Energy, the CCA serving San Mateo County, Don Eckert, director of finance for Silicon Valley Clean Energy, the CCA serving Santa Clara County, and Lindsay Saxby, power supply contracts manager for MCE (formerly known as Marin Clean Energy), the CCA serving Marin and Napa Counties, unincorporated Contra Costa County and several other adjacent cities and towns. The moderator is Deanne Barrow with Norton Rose Fulbright in Washington.

Future procurements

MS. BARROW: Tell us how much wind you have in your portfolios, and give us a sense of your portfolio needs going forward in terms of wind.

MS. SAXBY: MCE has approximately 1,800 gigawatt hours of wind in our portfolio. We have a pretty solar-heavy portfolio, so looking forward, we will mostly be looking for wind or hydro. There is a lot of opportunity there.

MS. DOHERTY: Peninsula Clean Energy launched in October 2016. Right after we launched, we signed two short-term power purchase agreements with existing wind farms because we wanted to get some renewables in our portfolio right away without having to wait for the whole development cycle associated with a project.

Since then, we have also signed a number of solar PPAs. Now we are looking to get more wind into our portfolio. Our goal over the long term is to be 100% renewable by 2025. We see wind as a great way to balance the solar in our portfolio because of the different generation profile.

MR. ECKERT: Silicon Valley Clean Energy is in the same position as the other CCAs. Wind is a valuable resource for us. Most of our deals right now are short term; however, we just inked a 200-megawatt wind deal with Pattern Energy. Silicon Valley Clean Energy and Monterey Bay Clean Power are purchasing power from the project. We look forward to including more wind in our portfolio for reasons already mentioned, such as balancing the duck curve and having a diverse generation profile.

MS. BARROW: All three CCAs want more wind in their portfolios. What additional value are you willing to provide wind? Are you willing to pay more or are you using any special criteria when valuing wind?

MS. SAXBY: When we do an RFO, we try and get an apples-to-apples comparison of all the offerings from the different technologies. We look for a net value that takes into account the congestion in the area and how we expect the supplier to perform.

When we do that, we often find that wind performs well and looks competitive against other types of technologies because wind is less likely than solar to be located in really congested areas. So although the PPA prices may look a little higher compared to solar, the net value tends to be competitive to other types of technologies.

MS. DOHERTY: We do a similar evaluation where we look at congestion. We also look at whether there might be any resource adequacy or capacity value where the wind is located and whether that can provide any local resource adequacy or capacity value for us. We also look at how the wind going to help us fill out our load curve.

MR. ECKERT: About a year ago, we issued an RFO with the CCA that serves Monterey Bay requesting wind, solar and solar-plus-storage. We emphasized that we would not move forward with solar unless it has storage. Wind comes into play as a desired resource because of the time of day when it hits the grid.

We are in the process of looking for more long-term power, but we have some challenges facing us from a CCA perspective. One is on the legislative and regulatory front, where we have new developments such as SB 237 and uncertainty regarding the amount of power charge indifference adjustment or exit charge that our customers have to pay to exit the utility and join the CCA. These two items limit our ability to lock in more long-term deals.

However, if the price is right, we will move forward with long-term deals. Seventy percent of our load in Silicon Valley is commercial and industrial, so even though our customers love 100% carbon-free energy, price does matter.

Competition

MS. BARROW: Don Eckert and Lindsay Saxby, you mentioned your RFO processes. On the first panel this morning, several wind developers said their success rate when bidding on corporate solicitations is really dismal. Are CCAs offering any better results?

MS. SAXBY: MCE received a lot of offers in our last open season. We issued the request for bids in January and received offers in March. It was the largest number of offers that we have ever seen.

MS. DOHERTY: Peninsula Clean Energy did an RFO earlier this year as well. We got quite a few offers. I think we are looking for high volumes pretty similar to what Lindsay mentioned.

The vast majority of offers were for solar, including a lot of solar plus storage, but also a good number of wind offers.

We would love to do more in California. It is important to our board to build new projects in California in order to create jobs in California. We saw fewer bids from California projects than we were hoping to see.

MR. ECKERT: As I mentioned, last October we issued an RFO jointly with the CCA for Monterey Bay. We just wrapped up one of those deals for a wind project, and we are still working on the solar-plus-storage piece.

Overall we had about 90 offers, and ultimately we settled on a wind project that is out of state. The project was cost competitive and had a very attractive capacity factor, and as long as we could impose some of our must haves, such as prevailing wage and environmental considerations, we moved forward with it.

MS. BARROW: You are referring to the Duran wind project in New Mexico. What were the motivations behind picking that project? Please go into some more details for the audience.

MR. ECKERT: We are purchasing 55% of the output, and Monterrey Bay is purchasing the other 45%. One of the reasons we did a joint RFO with Monterey Bay was to attract projects, such as the Duran project, to take advantage of the economies of scale with a larger project.

Also, we thank Pattern Energy for working with us. Unlike MCE, we do not have a credit rating. Pattern is easy to work with on an operational basis as well.

MS. BARROW: How is the power getting transported from New Mexico to California?

MR. ECKERT: There are going to be some risks with transmission, but Pattern Energy has that covered and we are looking forward to having the power delivered to us starting in 2025.

MS. BARROW: Does that project qualify for production tax credits at the full rate?

MR. ECKERT: Yes.

MS. BARROW: Lindsay Saxby or Siobhan Doherty, have you signed any recent PPAs?

MS. DOHERTY: Peninsula Clean Energy has not signed any PPAs yet this year due to regulatory uncertainty. As Don Eckert mentioned, the PCIA is an open issue at the California Public Utilities Commission, and our board has asked us to wait until that proceeding is settled because it introduces a lot of risk and uncertainty into our economics.

Once that is settled, we look forward to working with some of the developers that we shortlisted early this year to finalize PPAs.

MS. SAXBY: We are excited to announce that out of our very competitive open season this year, we signed a deal with BayWa r.e. for a 99-megawatt wind project in Santa Barbara.

Regulatory risks

MS. BARROW: Let’s delve a little deeper into obstacles and how you are dealing with those. Siobhan Doherty, you mentioned the regulatory risk with the PCIA and that the Peninsula Clean Energy board is waiting until that is resolved. The Public Utilities Commission is expected to deliver a decision any day now on phase one of the proceeding, but then there is phase two, where the commission will looking at rebalancing the investor-owned utility portfolios. How long before you expect to start seeing your PPA activity pick up?

MS. DOHERTY: We are waiting on the phase-one decision. Once that is finalized, we will obviously remain engaged in the next phase. We work closely with CalCCA on that.

MS. BARROW: Don Eckert and Lindsay Saxby, are you also holding off on long-term contracts until the PCIA proceeding is resolved?

MR. ECKERT: Absolutely. We are concerned about a couple risks. One is the unknown with the PCIA, but also there is a Senate bill, SB 237, that raises the cap on direct access. In Silicon Valley’s area, where 70% of the load is commercial and industrial, that could have a big impact on our customer base and load.

The other risk is we index our rates to PG&E rates, and we do not know where those rates are going. If it looks like those rates will move down and, in addition, we have a drop in load, then we will be a little more cautious about moving forward with a long-term deal.

We are also in the process of trying to get a credit rating. We have talked to the Moody’s folks that gave one to MCE. One challenge we face is the fact that, unlike regular utilities, we do not have a captive customer base. If we are not price competitive with PG&E, customers can immediately opt out of our service and go back to PG&E. To obtain a credit rating, which is very important to us, we are somewhat then limited on how much of our load we want to tie up with long-term deals.

MS. SAXBY: The regulatory uncertainty is significant.

While we are being strategic about what kind of deals we are looking into, we are still moving forward with procurement. But we are holding off on novel projects, like battery storage, until the impact of the PCIA proceeding is clear.

MS. BARROW: Is the risk associated with the PCIA proceeding that the PUC might establish a methodology that causes the PCIA to increase, which could cause customers to leave CCAs and go back to utilities?

MS. DOHERTY: It influences how tightly we have to budget ourselves if we want to maintain competitive rates. So, yes, the impact would be an increased charge to our customers and we would have to make up for that by buying less expensive energy.

MR. ECKERT: We are in the same boat. We have an index to PG&E’s rates that is slightly lower than PG&E to keep us cost competitive. We have our power supply cost and then everything between would be our margin, which then gets eaten up by the PCIA.

We want to get the PCIA right. We do not want to put costs unfairly on the customers that are still with PG&E. We want to have it transparent, be able to understand it, and have some certainty.

Even if the PCIA goes up by 20%, as long as I have some certainty, I can do financial planning and move forward with long-term deals. The regulatory uncertainty is a major issue for us.

MS. BARROW: Don Eckert, you also mentioned SB 237. That is the bill that increases the cap on direct access so more C&I customers can purchase power from electric service providers instead of you guys or the investor-owned utilities. Siobhan Doherty and Lindsay Saxby, is that also a concern that is influencing your procurement activity?

MS. SAXBY: A little bit, but less so than the PCIA because we have a smaller number of C&I customers in our territory than Don has in his.

MS. DOHERTY: We are in the same boat. There is still a cap on direct access, and we don’t see a huge exposure, but it is something that we are monitoring for sure.

Credit ratings

MS. BARROW: Lindsay Saxby, one of the big success stories this year for CCAs was MCE obtained a credit rating. What obstacles were you facing without a credit rating? Now that you have one, how have things changed? Did the market consider MCE investment grade even before you got rated?

MS. SAXBY: MCE has been in operation for almost eight years. We have done a lot of deals in that time. We were able to operate very well without a credit rating. We got the developer community comfortable with our financial statements, our strong reserves and our good track record of working with the developers.

There was an internal discussion at the very end when we thought we would probably get an investment-grade credit rating, but we discussed whether we even needed it. If it goes down, there is a negative impact, and we have been able to contract pretty easily without it. In the end, we went ahead. It happened after our open season process, but in the future, we hope it will lead to lower power prices that we can pass through to our customers.

MS. BARROW: Peninsula and Silicon Valley, are you getting pushback from developers because you lack credit ratings? Are you providing credit support? How are you dealing with the credit risk of not having a rating?

MS. DOHERTY: Peninsula Clean Energy signed two long-term PPAs with new solar projects, so it has not been a barrier. We learned from what MCE has done. One thing we focused on during our first two years of operations was building up our financial reserves so that we have a strong balance sheet, which is helpful in negotiations.

We are also transparent. Because CCAs are public agencies, almost everything we do is transparent. We have monthly public meetings that anyone can attend, and we publish all of the information related to those meetings.
When financiers and developers come to us asking for information, we can provide that pretty easily. Similarly, all of our financials are on our website. They are readily available.

MR. ECKERT: I came from a traditional vertically-integrated utility, where when power deals were done, the finance team would come in at the very end and look at the credit language and move on. With the CCAs, it was the opposite. We would start off the conversation talking about credit and spend a couple months on that.

Ultimately, we have moved forward. It has helped that both sides want to do a deal and that we have a board that supports a cash reserves policy. We are shooting for 50% of our operating expenses to be in reserves in the next couple years.

It is worth noting that we have a board that can set our rates. Even though we have a tendency to index our rates to PG&E, if circumstances get tough, we can set rates for our service territory.

Another large hurdle was concern that customers can leave us at any moment. Currently, Silicon Valley Clean Energy has an opt-out rate of about 3%. I think the other CCAs on this panel also have opt outs under 10%. We are in pretty good shape as far as keeping our customers.

Parting thoughts

MS. BARROW: Please share any parting thoughts.

MS. SAXBY: In the integrated resource planning proceeding before the California Public Utilities Commission, CalCCA submitted all of the CCAs’ plans for procurement through 2030. The data show a strong desire for wind.

There are about 2,700 megawatts of wind already under contract, and around another 1,500 megawatts of new wind is expected in the future. There is definitely still a lot of interest from CCAs in wind.

MS. DOHERTY: We talked about credit ratings and how CCAs have been able to get deals done. Peninsula Clean Energy is still very interested in getting a credit rating despite being able to do deals without one. We are learning from MCE about where Moody’s focused, and we are working with Moody’s to make sure we are in the right place once we have the operating data to get a credit rating. Hopefully this will make it easier for developers to work with us.

MS. BARROW: When do you expect to have a rating?

MS. DOHERTY: Our official goal is 2021, but we hope to have one sooner than that.

MR. ECKERT: We talked about risk on this panel. I want assure the developers that the CCAs are here to stay. We want to do business with you in the future, and wind is going to be an important part of our portfolios.

I also want to mention local control. It is one of the reasons why we have staying power and why customers are unlikely to return to PG&E. Our customers appreciate the fact that they have a say in the generation portfolio, rates and programs such as energy efficiency, and we reinvest any profits back into the community. For political reasons alone, we are here to stay.