With support from the Great Plains Institute, the Colorado Public Utilities Commission (PUC) conducted an investigation into the potential implications of community choice energy (CCE) authorization in Colorado. CCE is an alternative to traditional investor-owned, municipal, and cooperative electric supply models and is currently authorized in several other states.
In 2021, the Colorado General Assembly directed the PUC to open an investigatory proceeding into CCE authorization in the state, including completion of a report to the legislature summarizing the investigation findings. This blog post summarizes the investigatory findings, including the following key takeaways:
- Enabling CCE in Colorado would be a complex undertaking with numerous potential benefits and risks.
- The investigation identified potential approaches to statutory design and regulatory oversight that would be necessary to maximize CCE benefits and minimize potential risks.
- Colorado’s findings have potential implications for other states that are investigating or potentially considering opening an investigation into CCE authorization.
Electricity consumers nationwide are served by various provider types, including publicly operated municipal utilities, member-owned electric cooperatives, and investor-owned electric utilities (IOUs), which serve the majority of customers.
However, as part of electric utility industry restructuring efforts in the late 1990s and early 2000s, some states began exploring another option: CCE (also referred to as community choice aggregation, or CCA). CCE is an alternative electricity supply model in which local governments (or groups of local governments) purchase wholesale electricity. The incumbent investor-owned electric utility’s transmission and distribution infrastructure delivers the purchased electricity to the CCE customers.
Since the restructuring era, ten states have authorized CCE, and several states are considering the implications of CCE authorization today.
Colorado’s investigatory proceeding into community choice energy
On June 25, 2021, Colorado Governor Jared Polis signed House Bill 21-1269 into law, formally directing the Colorado Public Utilities Commission (PUC) to open an investigatory proceeding into the potential implications of authorizing community choice energy (CCE) in Colorado. In January 2022, the PUC issued Decision No. C22-0032, which formally opened Proceeding No. 22I-0027E, The Study of Community Choice in Wholesale Electric Supply (available here) to fulfill their legislative mandate.
The Colorado PUC subsequently hired the Great Plains Institute (GPI) to provide support with organizing an informational meeting for the Commission and the public, summarizing party comments in the proceeding, and drafting the Commission’s investigative report for the Colorado General Assembly.
HB 21-1269 and PUC Decision No. C22-0032 directed the PUC to respond to nearly 40 questions about potential implications of CCE authorization in Colorado. The questions sought to identify the potential impacts of enabling CCE in Colorado on a range of issues, including regulatory authority, resource adequacy and reliability, affordability, customer programs, renewable resources and greenhouse gas emissions, consumer protections, and broader wholesale market considerations.
A range of parties weighed in on the proceeding, including local governments, electricity customers, investor-owned utilities, legal scholars, labor unions, nonprofit organizations, state government offices, and other special interest groups.
About community choice energy
In a typical CCE model, local governments (or groups of local governments) aggregate the demand of their residents and businesses and the local governments purchase wholesale electricity to be delivered to those residents and businesses via the incumbent investor-owned electric utility’s transmission and distribution infrastructure.
During the CCE formation process, incumbent IOU customers within a CCE authority’s territory are typically automatically enrolled as CCE customers. However, customers have the option to “opt out” of CCE service and remain a customer of their investor-owned electric service provider. Typically, there are also rules enabling customers to switch between CCE and IOU service.
Importantly, though CCE authorities serve local governmental units, they are distinct from municipal utilities. Municipal utilities are publicly owned and operated but typically provide their own distribution (and sometimes generation and transmission) services to customers who cannot obtain electricity from an alternative provider.
Most states with authorized CCE have fully restructured electric utility industries and competitive electricity markets. However, two of those states—California and Virginia—are only partially restructured. Virginia has no operational CCE providers, but California has many.
If Colorado were to authorize CCE, it would be the first state without a fully or partially restructured electricity market to approve the model.
Several participants in the Colorado proceeding noted that because California is the only state with operational CCE providers that is not fully restructured, it can serve as a suitable case study for the PUC’s investigation into the potential implications of CCE authorization in Colorado. In response to these participant observations, GPI reviewed case study examples from California and assisted the Commission with organizing a public information meeting to identify lessons learned from California’s experience with CCE.
Takeaways from the California experience are captured in the appendices of the Commission’s report to the General Assembly.
Potential opportunities, benefits, risks, and drawbacks of CCE authorization in Colorado
Below, we have summarized some of the general perspectives shared by participants in the proceeding. However, for full details, please reference the Commission’s official report.
Potential areas of opportunity. In general, participants supportive of CCE authorization in Colorado viewed CCE as an opportunity to expand local choice while taking more aggressive action to address the climate crisis.
Several participants emphasized that as locally controlled entities, CCE authorities would be able to make decisions related to customer programming, electric service cost, and energy resource mix that closely align with local values when compared to investor-owned utility offerings. Commenters argued that because investor-owned utilities have a responsibility to provide reliable service to a large geographic area, their business decisions cannot always align with individual community preferences within that geographic area.
Participants also described several potential scenarios through which CCE authorization could expedite clean energy deployment.
Some emphasized that by introducing competition into Colorado’s vertically integrated electricity market, investor-owned utilities would be incentivized to deploy renewable resources more rapidly to discourage local governmental entities from forming their own CCE authorities as a measure to meet their local renewable energy goals. Others emphasized that as nonprofit entities, CCE authorities are naturally incentivized to offer desirable services, including low-cost energy efficiency and conservation programs.
Table 1 summarizes several potential areas of opportunity identified by participants in the PUC’s investigatory proceeding into CCE in Colorado, including but not limited to the opportunities described above. For a complete list and detailed description of all potential opportunities and benefits identified in the proceeding, please refer to pages 13–19 of the Commission’s report.
Table 1. Participants’ suggested opportunities and benefits of CCE authorization in Colorado
| Resource adequacy and reliability |
| Community-tailored energy resilience initiatives that enhance local reliability |
| Affordability |
| Lower-cost electric service offerings when compared to the investor-owned utility’s offering |
| Increased market competition could drive down costs |
| Targeted bill assistance programs developed with local needs in mind |
| Customer programs, satisfaction, innovation, and service quality |
| Locally targeted, community-focused programs |
| Extensive energy efficiency, distributed energy resource, and demand response opportunities due to lack of profit incentive |
| Collaboration between investor-owned utilities in CCE providers to develop innovative and more effective customer programs |
| Renewable energy and greenhouse gas emissions |
| Increased local control over electricity-related emissions |
| Opportunity for dedicated 100% renewable or 100% clean energy CCE offerings |
| Increased competition may drive investor-owned utilities to more rapidly develop cleaner electricity portfolios |
| Procedural considerations |
| Increased local control over electricity choices |
| Potentially eligible for grants and other funding mechanisms |
| Note: All benefits and opportunities described in Table 1 are potential in nature and based on party comments in the proceeding. CCE authorization in Colorado would neither guarantee that the listed benefits would occur nor prevent the listed benefits from occurring. |
Potential risks. However, participants who either opposed CCE authorization or preferred a more cautious approach to authorization expressed concerns about some of the same areas in which other parties viewed potential opportunities.
Notably, some commenters emphasized that CCE authorization would not guarantee that novel CCE providers could consistently purchase wholesale energy resources that met or exceeded their own energy goals or the renewable energy commitments that Colorado’s investor-owned utilities committed to in their clean energy plans. Of particular concern was the potential for desirable renewable energy resources to become a cost recovery burden to customers that opt out of CCE service and continue to receive electric service from their incumbent investor-owned utility.
To minimize those potential undue cost burdens and reduce the likelihood of customers frequently switching between their CCE authority and their incumbent investor-owned utility, California requires customers who leave their incumbent IOU and join a CCE authority to pay an exit fee (including customers automatically enrolled through the CCE formation process).
Exit fees prevent investor-owned utility customers from being unduly burdened with infrastructure fees necessary to recover their utility’s investment costs, including renewable energy investments. However, California’s exit fees have been unpredictable and sometimes costly to CCE customers, indicating that, in practice, CCE rates may or may not be more affordable than investor-owned utility rates due to several factors.
Despite exit fee implications, investing in renewable energy infrastructure remains critical not only to meet greenhouse gas reduction goals, but also because one entity must remain responsible for operating as the “provider of last resort” for CCE customers if their service provider departs the electricity market, which has occurred in the California CCE landscape.
Several participants also pointed out that enabling CCE may complicate long-term resource planning, as the IOUs must remain responsible for operating as the “provider of last resort” for CCE customers if their service provider departs the electricity market, which has occurred in the California CCE landscape. In addition, electricity generators must plan to be able to provide reliable electric service consistent with state renewable energy generation and greenhouse gas reduction goals for a potentially highly variable consumer base given opt-out rates and provider of last resort responsibilities.
Table 2 summarizes several of the potential risks and drawbacks that participants identified in the PUC’s investigatory proceeding into CCE in Colorado, including but not limited to the risks described above. For a complete list and detailed description of all potential risks and drawbacks identified in the proceeding, please refer to pages 13–19 of the report, available here.
Table 2. Participants’ suggested risks and drawbacks of CCE authorization in Colorado
| Resource adequacy and reliability |
| Shifting customer base due to factors including CCE opt-outs/opt-ins and the development of new CCE providers makes long-term resource planning challenging for both provider types |
| Potential for CCE providers to under-procure resources in the pursuit of competitive rates, thus over-relying on investor-owned utilities’ resource planning |
| Colorado does not currently participate in a wholesale electricity market, which would be a more suitable landscape for multiple electricity generators in the same service territory (though the state is required to join such a market by 2030) |
| Affordability |
| Exit fees can be costly, volatile, and difficult to calculate |
| CCE providers may choose to auto-enroll customers in a default service offering that is cleaner but higher cost, which may prove financially challenging to some customers |
| Need for legislative action to guide bill assistance program development, with particular consideration for low-income customer protections |
| Customer programs, satisfaction, innovation, and service quality |
| Fewer program development and implementation resources than incumbent investor-owned utilities, resulting in the potential for less effective and/or more costly customer programs |
| Program/service duplication with existing investor-owned utility offerings |
| Renewable energy and greenhouse gas emissions |
| Significant shift from existing greenhouse gas emissions reduction strategies could slow emissions reduction progress |
| No guarantee that CCE authorities would be able to provide electricity at carbon intensities equal to or less than the investor-owned utility offering at a lower cost |
| CCE authorities would likely not be operational for several years; in that timeframe, investor-owned utility clean energy investments may render CCE greenhouse gas reduction efforts less impactful |
| Procedural considerations |
| Difficult to secure financing at start-up and concerns related to potential customer implications of bankruptcy |
| Note: All risks and drawbacks described in Table 2 are potential in nature and based on party comments in the proceeding. CCE authorization in Colorado would neither guarantee that the listed risks would occur nor prevent the listed risks from occurring. |
Commission findings
Informed by participant feedback, the PUC identified key legislative and regulatory implications of CCE authorization in Colorado.
Notably, the PUC found that while CCE would need to be enabled through legislation rather than a PUC decision, the PUC’s regulatory roles and responsibilities over CCE authorities should be similar to the agency’s regulatory roles and responsibilities related to investor-owned utilities to protect the public interest.
The PUC further found that its regulatory authorities related to exit fees and greenhouse gas emissions were of critical importance to a beneficial CCE model in Colorado.
With respect to exit fees, if CCE were enabled by the General Assembly, the PUC found that it would need to open a proceeding dedicated to exploring and establishing an exit fee calculation methodology with appropriate consideration for the following:
- stranded costs (including stranded costs associated with recently deployed renewable resources)
- potential undue cost burdens on remaining investor-owned utility customers
- resource adequacy considerations necessary to ensure that the incumbent investor-owned utility can fulfill its responsibilities as the provider of last resort, among other exit fee concerns
With respect to greenhouse gas emissions compliance, the PUC found that its oversight of CCE authorities—in addition to oversight by other relevant agencies, such as the Colorado Air Quality Control Commission—would help ensure that Colorado remains on track to meet state greenhouse gas reduction goals.
As currently authorized under Senate Bill 19-236, Colorado’s investor-owned utilities are required to develop clean energy plans that would achieve an 80 percent reduction in carbon dioxide emissions by 2030 (compared to a 2005 baseline) and achieve a 100 percent clean portfolio by midcentury.
The PUC found that requiring CCE authorities to develop clean energy plans subject to PUC review and approval would help ensure that Colorado continues making progress toward state emissions reductions goals along the necessary timeline, even with the introduction of an alternative energy provider model. Furthermore, if the legislature authorizes CCE, it would likely still be several years before Colorado’s first CCE entities begin providing electrical service.
By that time, the PUC would have likely already approved investor-owned utilities’ clean energy plans in accordance with Senate Bill 19-236, and utilities will have begun investing in the clean energy resources required to meet plan goals.
This indicates that there are potential clean energy exit fee implications associated with CCE authorization, and careful oversight is necessary to ensure that all investor-owned utility and CCE authority actions remain in the public interest.
Conclusion
As identified in the investigative report, enabling CCE in Colorado would be a complex undertaking—one in which the potential opportunities and benefits would need to be carefully weighed against the potential risks and drawbacks. For that reason, the PUC found that careful statutory design and regulatory oversight similar to the PUC’s existing regulatory roles and responsibilities related to Colorado’s investor-owned electricity providers would be necessary to maximize CCE benefits and minimize potential risks.
Is your state undertaking an investigatory proceeding and seeking assistance with coordinating or facilitating stakeholder meetings, summarizing party comments, or drafting a report? Reach out to Trevor Drake at [email protected] to connect with the project team and learn how GPI can help as a neutral, third-party policy advisor and stakeholder engagement expert.
