3 Things to Watch as the City Ponders a Major Power Switch

It’s fair to say that public power agencies are taking the state by storm. They are known as community choice aggregators, or CCAs.

Dozens of cities across the state are talking about parting ways with their local power companies. Eight other local governments, mostly in Northern California, already have.

San Diego is one of the cities considering a CCA, and it recently learned it might be able to buy cheaper and greener energy than San Diego Gas & Electric. But the city must deal with questions about the study’s findings, hostility to government-run power and even factors well beyond its control, like new laws and regulations from the state Legislature or the California Public Utilities Commission.

By January, the mayor and City Council are expected to decide if the city should begin buying power for the city’s 1.4 million residents from someone other than San Diego Gas & Electric.

But expect a series of hurdles – foreseen and unforeseen – that try to stall, undermine or kill their plans.

In the past, SDG&E and its allies have fended off other attempts to challenge the company’s monopoly in San Diego County.

Marin Clean Energy in the San Francisco Bay area was the first community choice agency to make it through a gauntlet of such opposition, namely a multimillion-dollar campaign against it by Pacific Gas & Electric.

Right now, the movement is picking up speed, but community choice advocates remain worried. They often wonder what will be thrown at them. That’s one reason they formed their own trade group recently, CalCCA.

The group had its work cut out for it this week, when community choice advocates dodged a major bullet in Sacramento. The Legislature was rushing along a bill that would have effectively frozen the formation of new community choice agencies.

The measure died earlier this week. But it was not the first nor likely the last threat to community choice.

Other Legislative Threats

At a legislative hearing in late August, some lawmakers suggested they would like to at least temporarily halt the stampede of cities entering the energy market in order to compete with power companies. The lawmaker who led the hearing, San Diego Sen. Ben Hueso, has since indicated to community choice advocates that he doesn’t support such a freeze.

In 2014, an electrical workers union-backed a bill that would have made community choice agencies opt in rather than opt out. Right now, if the city of San Diego formed a community choice agency, everybody in the city would automatically be signed up for it, unless they opted out. If the bill had passed, people would have had to sign up to get the agency’s power, a seemingly small difference but one that would have effectively starved the city of any customers since few people opt in to such programs.

Because the economics of power purchasing depend in part on scale, a community choice agency without many customers would have been untenable.

“To have a really small load, you can’t get the right pricing to serve everybody,” said Shalini Swaroop, deputy general counsel for Marin Clean Energy, the state’s first CCA.

Such threats from the Legislature seem to be kept at bay for now.

Power Company Exit Fees

Last week, Sempra Services Corporation – a lobbying arm of SDG&E’s parent company, Sempra Energy – released a list of things that it says must happen for a San Diego CCA to make sense. Whether it’s a sincere to-do list or an unreasonably high set of bars is debatable.

First, according to Sempra, customers who are stuck with SDG&E must not be forced to subsidize customers who switch to getting power from a government-run CCA.

Soon, half or more of SDG&E’s customers could be in places where there is community choice, like the city. But that means the other half may be stuck paying for power the company already bought for everyone who left, like customers in small East County towns.

It’s like ordering a bunch of pizza for a raging party. Power companies want to make sure everybody pays for the pizza, even the people who left before the delivery guy came.

There’s a formula-based exit fee designed to make sure this doesn’t happen. For a community choice agency to make financial sense for ratepayers, it will have to be able to buy power so cheaply that its customers can afford both its power and paying off SDG&E. Predictably enough, the community choice advocates say the fees are too high, the power companies say they are too low.

For now, customers are being asked to pay fees based on information few people besides the power companies have access to.

Neal Reardon, regulatory affairs manager at Sonoma Clean Power, another community choice agency, said some of the information that goes into calculating the exit fees is considered a trade secret by PG&E. So, Sonoma hired a consultant who signed a non-disclosure agreement with PG&E to look over the power company’s books. The consultant can’t talk with Sonoma about everything he sees. That leaves Reardon, his agency and his customers in the dark about how the exit fees are calculated and what they will be from one year to the next.

If they had access to this information, Reardon said his agency could make some projections to protect customers. For instance, if the exit fee was going to go up 10 percent one year and then down 10 percent in the next, Sonoma could insulate its customers from a temporary rate increase. Right now, though, PG&E makes its exit fee public annually and without a tremendous amount of notice, which has the potential to send Sonoma customers on a roller coaster ride. Sharing more data might go a long way toward reducing uncertainty.

To add complications, the California Public Utilities Commission is talking about changing the formula. According to Sempra, “Until the exit fees have been determined, the costs of implementing a CCA are largely a wild guess.” The company says the city should wait for the CPUC to act, which could take another year.

Or, it urges the creation of a county-wide community choice agency – so that all SDG&E customers would then become community choice customers – a feat that would require politicians representing Jamul, Carlsbad, San Diego, El Cajon and San Marcos to get on the same page about contentious public policy.

Renewable Energy Rules

The other hurdles Sempra proposes are related: A San Diego community choice agency must provide “real and additional environmental benefits” and “reduce greenhouse gas emissions,” the company says.

The main reason San Diego wants to form a CCA is to ensure that 100 percent of electricity sold within city limits comes from renewable sources by 2035.

SDG&E has suggested it’s just not possible to have a reliable grid now without natural gas, which can be burned to generate electricity when the wind is flat and the sun is behind a cloud.

But Sempra also points to a bill – which now appears to be stalled in the Legislature – that gives California the goal of having all its electricity come from renewable sources by 2045. If that happens, Sempra argues, why does the city need to start its own power-buying operation to achieve a goal that everyone will have to achieve anyway?

Haney Hong, head of the San Diego County Taxpayers Association, said he worries the city may be willing to take financial risks to start an energy-buying operation only to achieve modest victories against climate change.

“You get to the point where you have to ask, is the juice worth the squeeze?” he said.

3 Things to Watch as the City Ponders a Major Power Switch, by Ry Rivard, Voice of San Diego, September 14, 2017.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *