Breaking HECO's Monopoly with Community Choice Aggregation?

by Gaetano Venezia

I’ve been using Lyft—the disruptive, peer-to-peer rideshare service—for a few weeks now and have been quite amazed with the diverse backgrounds of the drivers. I’ve met musicians, Marines, and perhaps most surprising, a nuclear engineer during my last trip. After going through the usual routine of telling my Lyft driver about my internship at the Grassroot Institute, he asked me if I knew anything about Community Choice Aggregation (CCA), a relatively new type of energy policy. At this point he also mentioned that he was a nuclear engineer and I knew I was in for an interesting ride.

As my driver explained, Community Choice Aggregation is a system adopted at the city or county level that allows citizens to pool buying power when choosing an electric supplier for their jurisdiction. Energy firms make different contract offers, competition is introduced, and communities can choose their supplier of energy based on their preferences: local jobs, renewable energy, cheaper cost, flexible contracts, allowances for personal energy provision. Citizens that prefer not to use CCA can use an opt-out provision that allows them to remain with their original energy supplier. The CCA system allows an alternative to the conventional, government-sanctioned energy monopoly. However, while “CCA’s generally take over the existing utility’s role as provider, [they still rely] on the previous infrastructure and maintenance of the existing investor owned utility (IOU)” (ThinkProgress).

Tufts University, when evaluating potential CCA implementation in Massachusetts in 2013, outlined some key advantages and disadvantages of CCA. Salient among the potential advantages are lower rates, rate stability, and greater ability to utilize renewable energy sources. Among potential disadvantages, administrative costs and higher rates are notable concerns. How could rates be potentially higher or lower? Well, many jurisdictions that have implemented CCA sign energy contracts that freeze the price of energy for the duration of the contract. If fuel costs rise this price freeze can be great for consumers, but if fuel costs decline, the consumers misses out on savings.

Another related drawback not mentioned by Tufts is the strain placed on the original energy supplier and its consumers. Those who opt-out are often guaranteed original rates. With less consumers, the original energy supplier will likely struggle to provide the same low costs at a profit.

CCA has so far been adopted by cities and counties in Massachusetts, Ohio, California, New Jersey, Rhode Island, and Illinois with success. The unique system has won awards from environmental protection organizations while simultaneously lowering energy prices (EPA, WWF).

But how would such a system work in Hawai‘i, where energy costs run rampant, alternatives are limited due to geography, and there are no municipalities smaller than counties?

Current residential electricity rates on Oahu average about 38 cents/kWh (May 2014).

Wholesale renewable sources of energy are of course cheaper.  Based on the Hawai‘i Department of Business, Economic Development, and Tourism (DBEDT) June 2013 report, solar photovoltaics (PV) only cost 22 to 27 cents/kWh, solar thermal (aka CSP) 27 to 33 cents, on-shore wind 16 cents, and hydroelectric 21 cents (1).

Renewable energy prices are lower still on the mainland (2). This difference in energy prices is usually explained by fuel costs, but since renewables don’t rely on fuel, the disparity points instead to Hawai'i's culture of rent-seeking, lack of competition, and political favors.

CCA opens the possibility of more renewable energy sources while introducing more choice and competition.

Under the current system, Hawai‘i Electric Industries (HEI) makes it difficult for individuals to use more renewables where circuits have maxed out (Hawai‘i News Now and Watchdog.com).

A shift to renewables requires upgraded infrastructure which can be expensive. These costs could diminish the savings from utilizing more renewable energy sources.

The first steps in evaluating CCA’s potential in Hawai‘i were taken this past March when the CCA approach was discussed at the “Electric Utilities: The Future Is Not What It Used To Be” conference . . . [held] at the Maui Arts & Cultural Center” (Ililani Media).

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Gaetano Venezia is a research intern at the Grassroot Institute of Hawai‘i and is pursuing a degree in philosophy at the University of New Orleans.

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1. These estimates are based on feed-in-tariff rates. The solar photovoltaic and solar thermal (CSP) rates include either a 35% tax credit or 24.5% tax rebate.

2. Even at the highest estimates, wind only costs from 9 (land) to 27 (offshore) cents per/kWh, solar photovoltaic 20 cents, solar thermal 38 cents, hydroelectric 14 cents, biomass 12 cents, and geothermal 5 cents. US Energy Information Administration, Table 2. (Figures are in MWh, simply divide by 1000 for kWh.)