“It’s incredible, you just have to keep an open mind. You can be creative in so many ways…in about a year we are going to have a $250 million business with a lot of opportunities to consider.” Tom Habashi, CEO, Silicon Valley Clean Energy
Silicon Valley Clean Energy (SVCE), the Community Choice Energy (CCE)[i] program that provides electricity to residents and businesses in twelve Santa Clara County cities launched its first phase of serving customers in April 2017. (Its second phase will take place in July.) On May 22, we took the opportunity of its launch to sit down and talk about SVCE’s operations and plans with its CEO Tom Habashi.
Before taking the job of SVCE CEO, you were the director of Roseville Electric Utility for a while.
Yes, and before that I also worked for City of Palo Alto Utilities. I was at the latter for about 14 years. I was in the electric engineering section for about six years and then I shifted to the power supply side.
What made you decide that Community Choice Energy (CCE) was an arena worth pursuing?
Well, actually I had retired from Roseville and took a break for five years. But this opportunity brought me out of retirement.
What intrigued you about getting involved with CCE?
It is what I like to do — the procurement side of the business — also working with renewables. It comes without the baggage associated with the electricity distribution system. It is an area in which you can be creative and innovative without being held back by the constraints associated with the transmission and distribution system. The latter is exact and you can’t think beyond certain bounds.
Well, you started innovating right away at SVCE by figuring out how to go 100% carbon free.
I found that going carbon free was definitely desirable from an environmental standpoint and doable from an economic standpoint, so I didn’t see why we should dabble around getting smaller percentages of renewable energy when we could go to 100% immediately. This is especially true if you aren’t locked into the thinking that eligible renewables are the only way to get to that goal. And I wasn’t locked into that mindset, either technically or politically. So it made sense to go 100% carbon free.
What is your power mix going to be? A lot of it is going to be electricity from large hydro in the Pacific Northwest, isn’t it?
It comes from both the northwest and California. We are starting the first two years at fifty percent renewables including twenty-five percent of Type One. We’ve been trying really hard to get twenty-five percent of Type Two but the market changed in the past few years, making Type Two scarce. And I think that’s due to the market design that you must have seventy-five percent of Type One and you can’t have any more than ten percent of Type Three.[ii]
Will this become more of an issue as all of these emerging CCE programs start procuring electricity? Will completing their portfolios be a challenge for some of them starting up?
I think so. One of the things we are doing, for example in 2019, is to change our policy from having a power mix of 50-25-25 to meeting the RPS standard percentage with Type One. We will fill the remainder with large hydro to enable us to continue 100% carbon free.
Let’s take the city of San Jose as an example. After a lengthy process, its city council approved a CCE program that they would like to launch about one year from now. Before they launch they will need to create an energy portfolio. And they have been considering an energy mix with renewables about ten percent above PG&E’s. Given the situation you just described, San Jose may have some challenges achieving a cost competitive and clean energy mix?
In SVCE’s case, we adopted rates that are one percent below PG&E’s. And even with our 100% carbon free approach to procurement, we are looking to retain about 25% or 30% of our net operating revenues. This will give us quite a reserve cushion over the next couple of years and after that we will be able to adopt rates that will be considerably more favorable to our customers.
That makes sense strategically.
Yes, and we have some creative new ideas about how to give back to the community using some of our retained earnings.
Of course, one of the things you can do with some of your net revenue is to develop distributed energy resources to further reduce greenhouse gas emissions, for example, enabling more local solar development.
One of the things that I push continuously now, especially with the suppliers of utility scale solar, is the need to seriously improve energy storage and link it to more solar development. And I think the only way that some solar developers will pursue storage is when the incentives that are being given today are changed. I think if we take that $23 after tax production incentive that is given to the wind folks and the 30 percent tax credit that is given to the solar folks and focus it on the storage side of the business, it will bring things into balance sooner.
So this is one of the challenges that you face, to balance your energy portfolios — the type and duration of your contracts and your expenses, too. It’s a juggling act.
Yes, we need to have diversity of technologies, resources, suppliers, and length of contracts. The more diversity you bring into the game the better.
Let’s return to the issue of distributed energy resources. There are other GHG reduction avenues SVCE can explore. For example, a number of local activists are interested in electrification — fuel switching gasoline and natural gas to electricity.
We are interested in this and it needs to be done smartly. Also, you want to give incentives to people to plug in during the middle of the day, not as soon as you get home or at nighttime.
So, some kind of demand-response strategy?
Exactly, give them free electricity during the day. If the energy is coming at negative cost, give it to them for free. We are still making money. And increase the cost at other times of the day. There are a lot of ways that you can use rates to influence behavior. And put together programs, too, like installing EV charging stations everywhere you can.
That’s what Sonoma Clean Power has been doing. They’ve been adding more charging stations and also creating incentives for the purchase of electric vehicles.
Yes, and there are people thinking about electrifying the freeways so you can charge while you drive.
Of course that’s down the road, so to speak. One of the challenges, as you know, is that it’s great to get more electric vehicles on the road, but unless you reduce the traffic, for example by getting people out of single occupancy vehicles, the congestion will remain very great in the Bay Area. So we need to come up with overall transportation strategies.
I’m all for electrifying all the trains. I think that’s the best way to go. I take the train to San Francisco for meetings. I never get in the car and drive; I just get on the train. Fortunately, I live only a few minutes walk from the train station.
As you mentioned at the start, there is a lot of potential for innovation once a CCE program is up and running.
It’s incredible; you just have to keep an open mind. And innovate not only in how to design technology but also in rate structures and how to spend money and how to creatively utilize your staff. You can be creative in so many ways.
So CCE programs can be real laboratories for innovation.
That’s right, in about a year we are going to have a $250 million business with a lot of opportunities to consider.
Of course, you will need to have your board be open to new possibilities.
I’ve been lucky with that. I have a board made up of people who have lived in Silicon Valley for some time and some of them have started their own businesses. Our board is very open-minded and creative. And they give me plenty of leeway. It has been very good so far.
What do you see as the biggest challenges confronting both SVCE and the Community Choice movement in general?
Obviously one of the biggest is the constant financial threat from not knowing what the PCIA or the PAM will look like in the future. If that gets resolved, that will make our lives a lot easier.
The second is something you find in every industry. You start up and you get accustomed to ways of doing business and even though the CCE movement is only seven years young, people get into routines. When that happens you can lose track of your original mission: reducing GHG emissions. And it will be important for us to remember that Community Choice programs are the single most significant step cities and counties can take to reduce our emissions by up to 25%.
Of course a Community Choice program can have other goals as well, such as enhancing the local economy. But the primary thing we need to remember is to focus on is doing away with the burning of fossil fuels.
Five years from now, in your ideal vision, what would Silicon Valley Clean Energy look like?
It would continue to be carbon free. It would have thirty to forty percent of its needs being met by long term PPAs or the actual facilities that we will build ourselves -wherever it makes the most sense to build them.
We would also be doing a lot of work to promote electrification – of everything. And, also we would be pushing energy efficiency products and strategies. Hopefully we will have our brand name and logo in every household.
That makes a lot of sense. As you know, most people don’t know anything about SVCE or Community Choice in general. But if and when you develop local projects and distribute equipment to customers you become a recognized asset rather than an undiscovered passive electricity provider.
In this industry we seem to have become accustomed and a lot more comfortable with the notion that our customers don’t know who we are and don’t think about us unless there’s an outage. And, when that happens they usually don’t have good feelings about you.
I’m OK with that. I can live with being unknown. I don’t need the name recognition as much as I need the behavioral change that needs to happen on the part of our customers and everybody to eventually get us to a carbon free world.
If recognition of SVCE helps people become conscious of the importance of being energy smart then it makes sense. It’s not just to puff up the organization but also to help people see they are being served by an innovative organization that is not only providing low cost carbon free energy but also helping them live more in harmony with the environment. That seems like a nice positive outcome.
It certainly is. And I know from years of experience that people respond to incentives. A lot of people are buying electric cars today not because they want a cleaner environment or even to reduce the cost of their gasoline but because they are getting incentives that reduce the price of their car quite a bit. And I would like to keep that going up until we find out that perhaps fuel cell vehicles are an even better way to run a car. Then we can take the incentive away from electric cars and push it into a new product.
So in conclusion, what advice do you have for local governments that are now considering starting Community Choice programs?
Skip the feasibility studies and the technical studies, they’ve been done already, and go straight into the Implementation Plan. That is the document that they will need to hand over to the CPUC and it is for all practical purposes your technical study. If you look at the elements you need to include in your Implementation Plan, it’s the same stuff. We know CCE is a good idea and a number of communities are already doing it. They are demonstrating that Community Choice can work. Save the hundreds of thousands of dollars being spent on those unnecessary reports. Don’t spend three or four years going around talking about it. Just jump right in and do it!
[i] In this interview we use the term Community Choice Energy and the abbreviation CCE. CCE is the same thing as Community Choice Aggregation (CCA), which is the formal legal term for the policy. There are four other cities in Santa Clara County. Palo Alto and Santa Clara operate municipal utilities, San Jose recently decided to start its own CCE program, and Milpitas has decided not to pursue CCE at the present time.
[ii] Renewable Energy Certificates are how the State of California tracks qualified renewable energy content in the State’s overall power mix. There are three Categories of RECs. Type (category) One (renewable energy certificates) is RPS-eligible renewable energy generated in California or delivered directly into the state. It is both the power and the renewable attribute, bundled together. Type Two is firmed and shaped (usually with natural gas) renewable energy scheduled into a California balancing authority, Type Three is unbundled renewable energy credits sold separately from the associated generation, that do not qualify under Type One or Type Two.