In New Challenge for California’s Utilities, Rating Agency Warms to Community Aggregators

The Community Choice Aggregators (CCAs) disrupting
California’s electricity market have come a long way in a short
time, and the credit rating agencies are taking notice.

Peninsula Clean Energy, which procures electricity for around
300,000 accounts in the San Francisco Bay Area’s San Mateo
County, obtained an investment-grade credit rating this week from

Moody’s
. It’s the second CCA to secure such a rating, after

Marin Clean Energy
did so last year.

With investment-grade ratings in hand, CCAs may be able to
negotiate better credit terms and lower energy prices, making them
more competitive suppliers of renewable power. The potential
implications for California’s market are big, particularly given
the bankruptcy of utility PG&E, whose own credit rating has
been lowered to
junk territory
.

“Right now, we have a better credit rating than the incumbent
investor-owned utility [PG&E],” Jan Pepper, CEO of
two-year-old Peninsula Clean Energy,
said in an interview. “If someone wants to take a risk in doing a
deal with us versus them, as far as the credit rating agency is
concerned we are more stable financially.”

Its new credit rating will give Peninsula Clean Energy an
immediate boost in its renewable procurements, Pepper said.

The CCA has a contract in place for a 200-megawatt (ac) solar
project under construction in California’s Central Valley
that’s owned by developer Centaurus Renewable Energy, due online
by the end of the year. Another 100-megawatt solar project will
follow in 2020.

Meanwhile, “we’ll be finalizing a couple more PPAs in the
next few months,” likely for projects in the 100MW ballpark,
Pepper said.

“Since we haven’t finalized those deals yet, we anticipate
the credit rating should have a positive impact on the pricing and
terms we’ll be getting for those contracts.”

Peninsula Clean Energy has also contracted for power from
projects much older than the CCA itself, like Avangrid
Renewables’ 13-year-old Shiloh wind farm in California.

Existential questions

From a relatively slow start after the launch of Marin Clean
Energy in 2010, CCAs have rapidly gained momentum in recent years,
as more California communities seize responsibility for procuring
their own power.

The CCA model sees non-profits like Peninsula Clean Energy
buying or generating renewable power, typically along a more
aggressive schedule than the utilities themselves are on. The
utilities, meanwhile, are left to operate the grid and collect the
bills, paying the CCAs what they are owed for their power.

When it comes to procuring renewables, CCAs have an advantage in
lacking expensive legacy power-purchase agreements signed at an
earlier stage of the renewables industry’s development. While
renewables operators may historically have preferred to sign PPAs
with big and well-known utilities,
that could change
in the wake of PG&E’s bankruptcy.

Views differ on whether CCAs pose an
existential threat
to California’s big utilities, though CCAs
insist the two can coexist.

Regardless, the proliferation of CCAs in the largest U.S. state
economy has been remarkable, with 19 programs now in place serving
more than 10 million customers — and many more in the pipeline.
The model is now spreading in Southern California, where it was
slower to take off than in counties around San Francisco.

“Over the past 2 to 3 years, CCAs have positioned themselves
as the de facto energy buyers for California,” said Colin Smith,
senior analyst for U.S. utility solar at Wood Mackenzie Power &
Renewables.

CCAs are already having a significant impact in the country’s
biggest solar market, Smith said, “and we expect a lot more in
the future.”

Tip of the spear?

The question is whether more CCAs — like the recently
launched East Bay Community Energy, based in Oakland and already
with more than half a million accounts — can follow in obtaining
an investment-grade credit rating.

Moody’s cited a number of factors specific to Peninsula Clean
Energy in announcing its Baaa2 rating, including the CCA’s
“conservative management strategy” and its business-minded
board of directors.

As of March 2019, Peninsula Clean Energy had unrestricted cash
of $108 million and steady internal cash flow generation.

“From the very beginning, we’ve been very conservative in
our financial policies,” Pepper said. “Before rolling out any
other programs, anything beyond the basic goal of providing
electricity, we wanted to make sure we were financially stable, and
put in place policies to ensure we had sufficient funds to weather
ups and downs in the market.”

Much of Moody’s decision on Peninsula Clean Energy would also
seem to apply to other CCAs as well.

The ratings agency notes the “inherent strengths of the
California CCA model,” which is based on state legislation, and
the fact that the court overseeing PG&E’s bankruptcy
proceedings has acknowledged that the money the utility collects
for Peninsula Clean Energy is “not a part of PG&E’s
estate.”

A spokesperson for the California Community Choice Association
trade group said in an email that other CCAs are already pursuing
credit ratings “and we expect more will do so in the
future.”

“While we cannot speculate on future determinations by credit
rating agencies, the assessments to date by Moody’s present a
bullish view of the CCA business model in California,” the
spokesperson said.

Pepper, too, thinks more credit ratings are coming.

“As other CCAs start to have a couple of years of operating
history like we do, I see no reason why they won’t be able to get
a credit rating,” she said.

Source: FS – GreenTech Media
In New Challenge for California’s Utilities, Rating Agency Warms to Community Aggregators