Why SDG&E wants to get out of the business of buying electricity

With California’s grid going through dramatic changes, San Diego Gas & Electric has approached the Legislature in Sacramento with a proposal that, at least at first blush, sounds pretty radical — it wants to get out of the business of buying and selling electricity.

Instead, the company is calling on the state to create a separate entity that would handle all those transactions.

SDG&E officials are quick to say it has no plans to go away — it and other investor-owned utilities in the state would still shoulder other responsibilities such as delivering power to customers through transmission and distribution facilities, maintaining poles and wires and taking care of billing and metering.

But it wants to be relieved of the job of purchasing the sources of electricity (natural gas, solar, wind, etc.) to meet customers’ energy needs.

“Choice is happening and we need to evolve with it,” said Kendall Helm, SDGE’s vice president of energy supply said. “And this old model … doesn’t make sense.”

The proposal comes as San Diego’s city council is expected this month to clear the way to form a community choice aggregation, or CCA, that would provide an alternative to SDG&E when it comes to procuring different sources of power.

CCAs and other changes to the power system

CCAs have sprung up across California in recent years, boasting they offer customers cleaner sources of power at roughly equal or sometimes even lower prices than traditional utilities.

Under the CCA model, local governments purchase the power.

Since elected officials often don’t have expertise in energy markets, many CCAs hire third parties with experience in energy markets to perform all sorts of complex scheduling and marketing transactions. Those third parties are paid by the CCAs through the rates the CCA charges to its customers.

A potential CCA in the San Diego area would likely include a joint powers authority that would fold in other municipalities such as Solana Beach, Del Mar, Encinitas, Carlsbad and Oceanside. That would make it one of the largest in California.

By state rule, once a CCA is established, customers in that given area are automatically signed up.

If customers feel more comfortable staying with the local utility, they can opt out of the CCA but it often requires customers to fill out a request form first.

SDG&E anticipates the creation of a CCA would result in about half of its current customers migrating to community choice.

Throw in the increasing numbers of customers getting their power from rooftop solar panels and private electric re-sellers called Direct Access providers — not to mention large industrial customers buying power directly from renewable generators — and SDG&E and other investor-owned utilities anticipate steep erosion of their customer base.

SDG&E officials have said more than 85 percent of retail electrical load could be supplied by sources other than California utilities by the mid-2020s. But its job delivering power to all customers — regardless whether they are in a CCA or other entity — will remain intact.

“We will always, for all customers, serve the delivery of energy through our transmission and distribution,” Helm said. “But if they have chosen another provider or another option and say, ‘I want this provider purchasing my energy,’ we don’t want to be purchasing their energy for them. They’ve chosen that provider. Let that provider do the purchasing.”

So what would take the place of the utilities when it comes to power purchases? And how would a change be structured?

SDG&E proposes creating a task force to look into the issue.

It would be led by the California Energy Commission (the state’s primary energy policy and planning agency), the California Public Utilities Commission (which regulates SDG&E and the state’s two other investor-owned utilities, Southern California Edison and Pacific Gas & Electric) and the California Independent System Operator (which oversees the operation of about 80 percent of the state’s electric power system, transmission lines and electricity market).

SDG&E in November asked lawmakers in Sacramento to introduce legislation creating the “Energy Procurement Task Force” by March of this year. Obtained by the Voice of San Diego, the draft bill looks to have the state establish a body that would handle power purchases and act as the default provider — in other words, assume the responsibilities investor-owned utilities now perform in that space.

The so-called “state-level electricity procurement entity” would be formed by Jan. 1, 2023 and get up and running no later than July 1, 2025. By then, the expected San Diego area CCA would be well under way.

“If 85 percent of customers are procuring their energy through a CCA or a (Direct Access) provider, it just makes sense there’s this third party entity that captures the (remaining) 15 percent,” said SDG&E spokesman Joe Britton. “Maybe it doesn’t make sense for the utilities to continue to do that.”

But one of the major reasons the state established a framework for CCAs to proliferate was to create competition and alternatives to the utility model. Wouldn’t shifting the responsibility of procuring power to a state-created “central entity” undermine that?

“There will always be a default provider,” Helm said. “We’re just saying it doesn’t need to be SDG&E. And there are many places in the U.S. and around the world where it’s not the investor-owned utility who is the default provider, so it’s not an untested model.”

Outstanding contracts

SDG&E, like the other investor-owned utilities in the state, have agreements with other power companies that typically range from five years to as long as 25 years. But with utilities serving fewer customers as CCAs and asother programs grow more popular, what happens to those contracts?

That’s a key part of SDG&E’s push for a state-level “central entity.”

Part of the entity’s responsibilities, as SDG&E sees it, is to shrink those portfolios. The state — or a third-party group — could buy some of the contracts that have shorter terms left on them. Other contracts could be re-assigned to the central entity. And, Helm said, excess resources can be taken off the table through auctions and markets.

Crucially, the draft bill calls for utilities receiving “full cost recovery” from those contracts.

“We have commitments to developers who absolutely do want to be made whole,” Helm said. “We can’t just walk away from contracts.”

Bill Powers, an engineer, consumer advocate and frequent critic of SDG&E, says the company is “pretty bulked up on utility-owned assets” and therefore sees the proposal to the Legislature as an opportunity.

“This is SDG&E and Sempra (SDG&E’s parent company) doing what they do, which is looking for the most favorable financial pathway for themselves,” Powers said. “And I’m sure if they could get a sympathetic legislator to float legislation that gives them a financially advantageous exit from the generation business, why not take it?”

What kind of effect would the proposal have on monthly bills for ratepayers?

“I really can’t predict that,” Helm said. “It will depend on the choice they make … If they are receiving service from a CCA in the future, it will depend on the choices their CCA makes and it will depend on power markets and all those other factors.”

CCA customers pay a monthly exit fee (called a Power Charge Indifference Adjustment) each month on their bill.

Over the years, utility customers — through their rates — have paid power companies to build things like power plants and sign long-term power contracts with independent power producers. The exit fee is designed to make sure those costs are not unfairly shouldered by customers who decide to remain with their traditional utility instead of joining a CCA.

Last October, the utilities commission adjusted the exit fee, which varies depending on the service territory of each of the state’s three investor-owned utilities.

SDG&E has estimated the new exit fee will come in at 3.3 cents per kilowatt-hour. That would equate to approximately $16.50 per month for a prospective residential customer who uses 500 kWh per month.

But backers of CCAs want the utilities commission to rehear the decision, complaining the fees have been adjusted too high, which they argue will reduce the financial incentive for prospective customers to jump on the CCA bandwagon.

If SDG&E’s proposal for a “central entity” is eventually adopted, Powers suspects ratepayers may be left on the hook.

“If the state were to legislate that it’s now state responsibility to keep all of these owners of capacity and owners of utility-owned generation whole, then inevitably it’s the citizens of the state who are going to pay for it,” Powers said.

Helm said SDG&E is focusing on investing in assets that help integrate renewable energy into the grid. About 45 percent of the electricity the company delivers comes from renewables, a higher percentage than SDG&E’s instate rivals at PG&E and Southern California Edison.

“If we were out of (the) procurement (business), we would probably not continue to try to build new plants,” Helm said.

Nicole Capretz, executive director of the Climate Action Campaign and a major advocate for CCAs in San Diego, said it’s too early to tell if the SDG&E proposal is a net positive or negative but “it’s good to know they (SDG&E) are rethinking their business model and adapting to a new world view. Eventually, it might make sense for them to just be in the wires business.”

SDG&E sent a letter in November to state Sen. Ben Hueso, D-San Diego, that outlined the proposal. Hueso is chairman of Senate’s energy committee. Hueso’s office said the senator is still reviewing the proposal and is not ready to comment on it.

“It’s something we’re obviously going to be vetting thoroughly,” said Erin Hickey, Hueso’s communications director.

 

Why SDG&E wants to get out of the business of buying electricity, by Rob Nikolewski, The San Diego Union-Tribune, January 13, 2019.

Solana Beach to enter three-year energy purchase deal

Seeking to reduce the risk from fluctuations in the energy market, the city of Solana Beach will enter into a three-year purchase agreement for hydroelectric power, under the city’s program that allows residents to purchase electricity as an alternative to San Diego Gas & Electric.

The city launched its program, called the Solana Energy Alliance, last summer. Among the goals of the city’s program are to offer cleaner energy to the city’s residents, provide more local control regarding energy sources, and work toward the city’s target of having 100 percent renewable energy by 2035, said Dan King, assistant city manager. The city also agreed to set electricity rates at 3 percent below those charged by SDG&E.

Under the program established by the council, the city has contracts with two entities, said King. One organization, called the Energy Authority, is a consortium of eight or nine public energy alliances similar to the one formed in Solana Beach. The authority purchases power on the open market for its member agencies.

The city also contracts with a second consultant that handles such tasks as operating a call center, customer billing and data management.

At its meeting on Wednesday, Jan. 9, the Solana Beach City Council voted unanimously to authorize the Energy Authority to enter into a three-year contract to purchase hydroelectric power, to meet the needs of Solana Beach residents who are participating in the city’s alternative energy program. This would be the first long-term energy contract for the city program, but the city will explore other long-term options in the future, King said.

A city staff report said that in a worst-case scenario, the city’s energy costs could go up by $5,699 over the three-year life of the deal, while under the best case, the city could save $25,609 over the three years. The difference, said King, depends on the amount of rainfall during the contract period, which affects the cost of hydroelectric power, and if additional agencies join in the purchase agreement through the Energy Authority.

“If things work out well, it’s a much better deal,” said King.

Under questioning by council member Jewel Edson, King said residents’ electric rates would not go up even if the city’s energy costs rise marginally during the three-year energy purchase agreement.

According to King, Solana Beach residents are automatically enrolled in the city’s energy program unless they opt out. Currently, he said, there are about 7,000 households in the program. About 8 percent of the city’s households have opted out of the city’s program and have continued to purchase their electricity from SDG&E, leaving the city with a 92 percent participation rate in its fledgling energy program,.

The Solana Energy Alliance offers two packages of electricity rates: SEA Choice, which promises electricity from 50 percent renewable sources, and 75 percent from sources free of greenhouse gas emissions; and SEA Green, which offers electricity generated from 100 percent renewable sources.

Currently, residents who use an average of 445 kilowatt hours per month are billed $119.35 for SEA Choice, and $120.69 for SEA Green. SDG&E’s charge for standard electrical service is $122.69, and it also offers a 100 percent renewable option for $121.65. A side-by-side comparison of SEA and SDG&E rates can be found on the city’s website at https://solanaenergyalliance.org/wp-content/uploads/2018/10/JRC-Online-July-1-2018.pdf.

Those in the program continue to pay SDG&E for use of its power grid and transmission lines.

Solana Beach was the first city in San Diego County to launch a community choice energy program. According to the CalCCA, an advocacy group, there are 19 community choice programs serving some 8 million California residents.

King said funding for Solana Beach’s community choice program is kept separate from the city’s general fund. The city did contribute $107,000 in startup costs for the Solana Energy Alliance, which will be paid back over time. The program also covers approximately $122,000 annually in city staff costs for work done on behalf of the energy program.

If the community choice program accumulates funds above those needed to operate the program, the city could designate the money toward projects that further the goals in its Climate Action Plan, King said. Other California communities with energy choice programs have used money generated from energy sales to pay for such things as electric vehicle rebates and electric buses.

 

Copyright © 2019, Del Mar Times

Solana Beach to enter three-year energy purchase deal, by Joe Tash, Del Mar Times, January 13, 2019.

Clean Coalition’s Solar Siting Survey identifies about 500 MW of large commercial-scale solar potential on built environments in the City of San Diego

January 11, 2018

NEWS RELEASE: Clean Coalition’s Solar Siting Survey identifies about 500 MW of large commercial-scale solar potential on built environments in the City of San Diego

The untapped solar potential on rooftops, parking lots, and parking structures can significantly increase San Diego’s local solar generation

MENLO PARK, CA – The Clean Coalition has released a Solar Siting Survey that highlights the significant level of commercial-scale solar that may be generated within the City of San Diego. The Solar Siting Survey was conducted as part of the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) Solar Energy Innovation Network (SEIN), a collaborative effort to explore new ways solar energy can improve the affordability, reliability, and resilience of the nation’s electricity grid. The City of San Diego was one of nine teams selected to join the program, with a defined objective to ensure that 25% of the total electricity consumed throughout the City of San Diego is generated by local renewable energy sources sited within the City by 2035, when San Diego intends to be powered by 100% renewables.

The San Diego Solar Siting Survey identified approximately 500 megawatts (MWac) of technical solar siting potential for large commercial-scale solar deployments on built environments within the City. The survey pinpointed the location and estimated project sizing for over 120 prospective solar sites that could each host a solar project of at least 1 MWac. While a portion of the solar siting potential is on large rooftops, more than 75% is on parking lots and parking structures, which are often overlooked as siting opportunities for clean local energy. In total, this survey identified enough local solar capacity to fulfill the average power needs of about 500,000 homes during peak solar production hours.

A snapshot from the Clean Coalition’s San Diego Solar Siting Survey

San Diego has even more commercial-scale solar siting potential than was identified in this survey, which focused on very large solar projects. If a minimum project size of 500 kilowatts (kW) were considered, instead of the 1 MW size that was set, the Clean Coalition expects that the technical solar siting potential in San Diego would increase by a factor of two to about 1 gigawatt (GW); this would approximately double again to 2 GW if projects as small as 100 kW were considered.

The Clean Coalition’s unique Solar Siting Survey methodology does more than identify viable solar siting opportunities across urban environments; it also evaluates those opportunities based on the interconnection potential of the local grid for each identified site. Solar Siting Surveys help facilitate the development of local solar projects, which San Diego has a tremendous opportunity to expand.

“By identifying the top commercial-scale solar siting opportunities within San Diego, this Solar Siting Survey provides property owners, developers, and policymakers a clear view of the vast potential for solar within the City, and exactly where the best opportunities exist,” said Craig Lewis, Executive Director of the Clean Coalition. “In addition, this Survey helps identify the best solar sites, thereby reducing the costs associated with developing solar and solar+storage projects.”

With over 100,000 solar installations, mostly at residential-scale, San Diego is already one of the nation’s top solar cities. But as in many U.S. cities, the potential for commercial-scale solar remains largely untapped. To unlock the potential of this underserved market segment in San Diego, the Clean Coalition will follow this Solar Siting Survey with an innovative Feed-In Tariff (FIT) that streamlines procurement opportunities for commercial-scale renewables and energy storage, greatly fulfilling core City objectives.

“The Clean Coalition’s Solar Siting Survey and FIT design are powerful tools to maximize local solar energy, delivering a trifecta of economic, environmental, and resilience benefits to communities,” added Mr. Lewis. “We are excited to help San Diego unlock the tremendous potential of commercial-scale solar and provide a model for other communities throughout California and well beyond.”

Developing the local solar projects identified in the Solar Siting Survey can help create a stronger, more resilient grid in San Diego. By pairing distributed solar with other distributed energy resources, such as energy storage, demand response, and electric vehicle charging infrastructure, the city has the potential to establish Community Microgrids, a new approach to designing and operating electricity grids and providing indefinite, renewables-driven backup power to critical facilities. Many of the large solar sites identified in this survey are prime candidates to serve as foundations for Community Microgrid.

The Clean Coalition’s San Diego Solar Siting Survey and associated materials are available on the Clean Coalition website.

###

About the Clean Coalition
The Clean Coalition is a nonprofit organization whose mission is to accelerate the transition to renewable energy and a modern grid through technical, policy, and project development expertise. The Clean Coalition drives policy innovation to remove barriers to procurement and interconnection of distributed energy resources (DER) — such as local renewables, energy storage, advanced inverters, and demand response — and we establish market mechanisms that realize the full potential of integrating these solutions. In addition to being active in numerous proceedings before state and federal agencies throughout the United States, the Clean Coalition collaborates with utilities, community choice aggregation agencies, municipalities, and other jurisdictions to create near-term deployment opportunities that prove the technical and economic viability of local renewables and other DER.

Contact:
Rosana Francescato
Communications Director
rosana@clean-coalition.org
415-282-2488 (m)

‘Growing pains’: City presents CCA quarterly update

SOLANA BEACH — The first of its kind in the county, Solana Beach’s Community Choice Aggregation program is anticipating a decline in projected revenue over the next few years, a hurdle one council member referred to as “growing pains.”

The outcome is largely attributed to increases in the cost of energy and a modified “exit fee.”

Community Choice Aggregation, or CCA, is a method by which cities can procure and provide renewable energy to their residents. The program is becoming increasingly popular in the state of California, particularly among cities vying for more local control of their energy.

Solana Beach is the first city in San Diego Gas & Electric territory to embark on the program — called Solana Energy Alliance, or SEA — which took off in June of2018.

Except for residents who chose to opt out and stick with SDG&E, the energy funneled into local homes is now 50 percent renewable and 75 percent greenhouse gas-free, with the option to opt-up to 100 percent renewable. The cost to customers is 3 percent below that of SDG&E’s.

About 45 percent of the energy SDG&E provides is renewable. The state has mandated that energy providers serve 33 percent renewable energy by 2020.  

SEA harnesses its energy from predominantly wind, geothermal and hydroelectric sources.

The energy is still delivered by SDG&E, making the provider both SEA’s collaborator and competitor.

City staff and consultants provided a quarterly update to council at a Nov. 28 meeting, reflecting revenues for 2018 which are 7 percent higher than estimates from April. However, the projected cumulative net revenues for the next five years have seen a notable decline — from $3.9 million to just under $1 million.

According to the program’s consultants, increases in the price of natural gas have had a sizable impact on wholesale electricity prices. However, projected numbers are also taking a hit from a change to the Power Charge Indifference Adjustment.

The Power Charge Indifference Adjustment is an exit fee which is charged to customers who leave an investor-owned utility — like SDG&E — for a Community Choice Energy provider such as SEA. It is meant to compensate investor-owned utilities for the energy previously procured on behalf of now former customers, energy they then have to sell on the open market.

The California Public Utilities Commission ruled in early October to change the methodology by which the exit fee is calculated — a decision that has negatively impacted the near-term projected numbers of SEA and delayed a CCA feasibility study undertaken by several North County cities.

Utilities Commissioner Carla Peterson proposed the new formula, asserting that it will ensure customers who decide to stay with the investor-owned utility are not saddled with excess costs.

The new exit fee is expected to go into place in January 2019, and staff currently estimate the rate will average 2.8 cents per kilowatt-hour overall, with a 3.2 cents per kilowatt-hour average for residents. It is currently 1 to 2 cents per kilowatt-hour.

However, Solana Beach and several other CCAs are pushing back. On Nov. 19, SEA, in conjunction with CalCCA and CleanPowerSF, filed an application for rehearing with the Public Utilities Commission.

Regardless of the outcome, council members expressed confidence that the effects of the PowerCharge Indifference Adjustment would not pose a long-term threat to the program.

The idea of starting a CCA in the county’s second smallest city has been gaining slow and steady traction over the past seven years. North County resident and former member of the city’s Clean and Green Committee, Lane Sharman, introduced the concept to the Solana Beach City Council in October 2011, about a year after Marin County launched the first CCA in the state.

Sharman called the CCA option a “low-hanging fruit” that offers “low risk and high reward” for the city.

“Community Choice Energy was very attractive to a large number of people in Solana Beach who view climate change and global warming as an existential threat,” Sharman said.

The city outlined four principal goals for the program: providing cleaner energy, obtaining local control, increasing rate savings and meeting the city’s climate action plan.

By partnering with The Energy Authority — which currently purchases renewable energy on the city’s behalf — and taking out a loan from the city’s general fund to tackle upfront costs, the city is now meeting those goals. SEA currently serves 92 percent of the city’s residents and 99 percent of its businesses.

According to Assistant City Manager Dan King, the city will be able to pay off its initial loans by August 2019, making it a self-funded enterprise.

However, for the time being, the city will fall short of its final goal: to use the excess revenue from the program to fund other sustainability efforts in the city. Mayor Dave Zito envisions options such as providing more electric car charging stations in the city, or incentivizing residents to install solar panels on their rooftops.

This isn’t the first time Solana Beach has paved the way in the realm of environmental sustainability — the city was also the first in the county to ban single-use carryout plastic bags in 2012, and the first to ban the use of polystyrene at local restaurants. Council members point to the Clean and Green Committee as an active entity at the forefront of the CCA effort.

“We prioritized it, and we had a very active community that was asking for this, and that’s why it happened sooner than in other communities,” Zito said.

Neighboring cities are now following in Solana Beach’s footsteps — Del Mar, Encinitas, Oceanside and Carlsbad are currently awaiting the results of a feasibility study regarding the possibility of pursuing a CCA.

In October, San Diego Mayor Kevin Faulconer announced his support of CCAs, anticipating a CCA program could take off in San Diego as soon as 2021.

Now that the city is finding its footing with SEA, staff and council are looking outward to see how they can collaborate with other cities interested in pursuing Community Choice Aggregation.

According to city staff, SEA is open to “all potential governing structures,” including a Joint Powers Agreement, which would allow the city to potentially scale up energy procurement by jointly administering a CCA with other area cities. Representatives from the interested cities, including San Diego, will be meeting to explore options in the coming weeks.

“When we launched, this council was clear — do not turn our back on our neighbors,” City Manager Greg Wade said.

 

‘Growing pains’: City presents CCA quarterly update, by Lexy Brodt, The Coast News Group, December 13, 2018.

How San Diego’s New Government-Run Energy Agency Would Work

Since Solana Beach launched its own power-buying agency to compete with San Diego Gas & Electric in June, the city’s 7,000 electricity customers have already saved about $200,000.

But the city is also already looking ahead to a rough patch where it expects the new agency to lose money until 2022. The amount is relatively small – about $350,000 over three years – but an early sign of how hard it is to predict what will happen in the energy business.

The Solana Energy Alliance is one of about 19 government-run “community choice” agencies in California and the first in San Diego. Local officials created these agencies, known as CCAs, to give themselves more control over energy decisions, largely as a way to fight climate change.

When Solana Beach’s City Council went over the agency’s first quarter of financial returns last week, it had on hand advisers from four different consultant firms – The Bayshore Consulting Group, The Energy Authority, Calpine Energy Solutions and the Tosdal Law Firm.

Advisers like these are set to play a larger role in local energy policy as the city of San Diego and several other nearby cities think about forming their own CCAs. Most California cities – with the notable exception of Los Angeles and Sacramento – are new to the energy market.

San Diego’s agency, if approved by the City Council, will operate at a far larger scale than Solana Beach’s – it will buy power for hundreds of thousands of customers, instead of a handful of thousands. But like Solana Beach, San Diego will have to bring in new people to help. That will be a mix of bureaucrats and outside advisers.

California energy policymakers are, on the one hand, among the best in the world – the state’s mix of green energy is astounding compared with most of the country, a feat that was accomplished with the help of graduates of the state’s public universities. They are also, of course, fallible, as the 2000-2001 energy crisis showed.

The city already has a few people on its staff who understand the energy world, including a chief sustainability officer, Cody Hooven, who is overseeing most of the CCA work, and a deputy city attorney, Fritz Ortlieb, who has been looking out for the city’s interests before the California Public Utilities Commission.

The city also relied on outside energy consultants as officials decided whether it made sense to enter the energy market. These consultants’ math convinced Mayor Kevin Faulconer – a Republican naturally inclined to support a private utility like SDG&E rather than a government-run agency – that a CCA made better business sense.

The city started last summer with a study that showed a government agency was doable – not only could the city buy greener power than SDG&E is providing but the city’s power would be cheaper. Willdan Financial Services did that study, which was reviewed by another consultant, MRW & Associates.

In March, MRW also tore apart SDG&E’s counteroffer, which was supposed to show the city a way to provide greener energy without forming its own agency.

Then MRW did a full-on business plan, which city officials will use as their template for creating a new agency. Two other consultants, PFM Financial Advisors and EES Consulting, reviewed MRW’s plan.

Once formed, San Diego’s new agency would likely be run in conjunction with a few other nearby cities that also want to have control over their energy decisions. Even though other cities are involved, San Diego will be the 800-pound gorilla, as it is in several other local agencies where the city and its suburbs try to make decisions together.

Already, local water utilities, which are government-run, have formed the San Diego County Water Authority, which buys water from outside of the county. There, the city controls about 40 percent of the board votes.

A CCA will be overseen by a board, likely made up of elected officials, and then run by staff. That staff will continue to lean on outside consultants, like Solana Beach uses.

The key players there are The Energy Authority, a Florida-based consultant that buys power on Solana Beach’s behalf. While public officials chart the course that the consultant takes, its staff are ultimately the people in the market making trades. The Solana Energy Alliance gets 27 percent of its power from wind farms, 21 percent of its power from geothermal facilities, 27 percent of its power from hydroelectric facilities and another 24 percent from unspecified purchases of power available on the grid at a given time.

The other major player is Calpine Energy Solutions, a subsidiary of the natural gas and geothermal giant Calpine. The company provides Solana Beach with data management, billing help and a call center for customer service.

Solana Energy Alliance is designed to be legally separate from the city, so city funds aren’t supposed to be at risk as the agency realizes it’s going to earn less than it planned. But City Manager Greg Wade suggested last month that the agency could delay repaying money it borrowed from the city’s general fund.

Even though the alliance is a nonprofit, it expected to “make money” by selling power for more than it costs to buy it. That money pays consultants and overhead. But now the amount it expects to get is far lower than initially planned. In April, it expected to make $3.9 million over the next five years. Now, it expects to make $1 million. This assumes that Solana Beach will continue to sell power for 3 percent less than SDG&E does. Wade also recently suggested that the city could raise prices slightly, though rates would still be set below SDG&E’s.

Officials blamed these revisions, in part, on higher-than-expected energy prices over the summer and higher-than-expected “exit fees” that customers pay to leave SDG&E.

The California Public Utilities Commission recently raised those exit fees, a decision that pleased SDG&E and the state’s two other major utilities. Solana Beach and the community choice trade group CalCCA  were not so happy and recently appealed the decision. An appeal is something the CCAs have to do before they can sue the Public Utilities Commission in court.

The city of San Diego said it already factored those higher fees into its plans.

A formal plan for creating a San Diego CCA is expected to be sent by the mayor to the City Council in January.

In the meantime, SDG&E is so confident that CCAs are taking off that the company is asking to exit the power-buying business so that it can focus on infrastructure projects.

Disclosure: Mitch Mitchell, SDG&E’s vice president for government affairs, sits on Voice of San Diego’s board of directors.

 

How San Diego’s New Government-Run Energy Agency Would Work, by Ry Rivard, Voice of San Diego, December 4, 2018.

Cheaper energy bills in San Diego next summer? Utility attempts change

If you had an air conditioner on this summer, there’s a chance your bill included a financial punch in the gut in the form of a “high usage charge.”

San Diego Gas & Electric sent a letter to get rid of the cost-escalating high usage charge — designed to promote energy conservation — to the agency that established it, the California Public Utilities Commission, by June 1.

There’s no guarantee the commission will do anything, but SDG&E said they were prompted to do something after the hottest August on record meant ratepayers were hit especially hard.

“We heard from customers and we are trying to be responsive to what we heard,” Wes Jones, SDG&E communications manager, said Tuesday.

The high usage charge was put in place by the commission in November 2017, meaning most customers did not find out about the change until they really needed extra power the following summer.

As part of the state’s efforts to promote energy conservation, the commission said all California customers would be charged the steeper rate, not just San Diego, when they use more than four times the electricity their homes are allotted each month.

Yet the change came as Southern California reached some of its highest recorded temperatures this summer, and the energy-sucking air conditioners turned on.

Customers in a standard SDG&E tiered billing system pay 27 cents per kilowatt-hour during the summer season (June 1-Oct. 31) and 23 cents a kilowatt-hour in the winter (Nov. 1-May 31).

In SDG&E’s service territory, the high usage fee is 55 cents a kilowatt-hour in summer and 47 cents in winter. It estimates ratepayers would have saved an average $30 a month without the high usage fee.

The utility estimated more than 105,000 ratepayers exceeded 400 percent of their baseline this summer, which only represents about 7.5 percent of its 1.4 million customers. Still, it was flooded with complaints.

Some critics, like The Utility Reform Network, have argued reducing rates would better help customers instead of getting rid of a high usage fee, which would be transferred to other customers who don’t use as much power.

Jones said if the utility does get approval to remove the high usage fee, changes to the lower tiers would be negligible. He said he didn’t know exactly what the changed rates would be. SDG&E sent its letter to the commission on Friday.

In the meantime, SDG&E has come up with other ideas to try and reduce fees this summer:

  • Eliminating seasonal pricing where rates are higher in the summer than winter.
  • Move the climate credit to August to reduce costs. Climate credits are typically given in April and October.
  • Create a new baseline allowance to reflect hotter summers.

Staff writer Rob Nikolewski contributed to this article.

 

Cheaper energy bills in San Diego next summer? Utility attempts change, by Philip Molnar, The San Diego Union-Tribune, December 4, 2018.

How San Diego’s New Government-Run Energy Agency Would Work

Since Solana Beach launched its own power-buying agency to compete with San Diego Gas & Electric in June, the city’s 7,000 electricity customers have already saved about $200,000.

But the city is also already looking ahead to a rough patch where it expects the new agency to lose money until 2022. The amount is relatively small – about $350,000 over three years – but an early sign of how hard it is to predict what will happen in the energy business.

The Solana Energy Alliance is one of about 19 government-run “community choice” agencies in California and the first in San Diego. Local officials created these agencies, known as CCAs, to give themselves more control over energy decisions, largely as a way to fight climate change.

When Solana Beach’s City Council went over the agency’s first quarter of financial returns last week, it had on hand advisers from four different consultant firms – The Bayshore Consulting Group, The Energy Authority, Calpine Energy Solutions and the Tosdal Law Firm.

Advisers like these are set to play a larger role in local energy policy as the city of San Diego and several other nearby cities think about forming their own CCAs. Most California cities – with the notable exception of Los Angeles and Sacramento – are new to the energy market.

San Diego’s agency, if approved by the City Council, will operate at a far larger scale than Solana Beach’s – it will buy power for hundreds of thousands of customers, instead of a handful of thousands. But like Solana Beach, San Diego will have to bring in new people to help. That will be a mix of bureaucrats and outside advisers.

California energy policymakers are, on the one hand, among the best in the world – the state’s mix of green energy is astounding compared with most of the country, a feat that was accomplished with the help of graduates of the state’s public universities. They are also, of course, fallible, as the 2000-2001 energy crisis showed.

The city already has a few people on its staff who understand the energy world, including a chief sustainability officer, Cody Hooven, who is overseeing most of the CCA work, and a deputy city attorney, Fritz Ortlieb, who has been looking out for the city’s interests before the California Public Utilities Commission.

The city also relied on outside energy consultants as officials decided whether it made sense to enter the energy market. These consultants’ math convinced Mayor Kevin Faulconer – a Republican naturally inclined to support a private utility like SDG&E rather than a government-run agency – that a CCA made better business sense.

The city started last summer with a study that showed a government agency was doable – not only could the city buy greener power than SDG&E is providing but the city’s power would be cheaper. Willdan Financial Services did that study, which was reviewed by another consultant, MRW & Associates.

In March, MRW also tore apart SDG&E’s counteroffer, which was supposed to show the city a way to provide greener energy without forming its own agency.

Then MRW did a full-on business plan, which city officials will use as their template for creating a new agency. Two other consultants, PFM Financial Advisors and EES Consulting, reviewed MRW’s plan.

Once formed, San Diego’s new agency would likely be run in conjunction with a few other nearby cities that also want to have control over their energy decisions. Even though other cities are involved, San Diego will be the 800-pound gorilla, as it is in several other local agencies where the city and its suburbs try to make decisions together.

Already, local water utilities, which are government-run, have formed the San Diego County Water Authority, which buys water from outside of the county. There, the city controls about 40 percent of the board votes.

A CCA will be overseen by a board, likely made up of elected officials, and then run by staff. That staff will continue to lean on outside consultants, like Solana Beach uses.

The key players there are The Energy Authority, a Florida-based consultant that buys power on Solana Beach’s behalf. While public officials chart the course that the consultant takes, its staff are ultimately the people in the market making trades. The Solana Energy Alliance gets 27 percent of its power from wind farms, 21 percent of its power from geothermal facilities, 27 percent of its power from hydroelectric facilities and another 24 percent from unspecified purchases of power available on the grid at a given time.

The other major player is Calpine Energy Solutions, a subsidiary of the natural gas and geothermal giant Calpine. The company provides Solana Beach with data management, billing help and a call center for customer service.

Solana Energy Alliance is designed to be legally separate from the city, so city funds aren’t supposed to be at risk as the agency realizes it’s going to earn less than it planned. But City Manager Greg Wade suggested last month that the agency could delay repaying money it borrowed from the city’s general fund.

Even though the alliance is a nonprofit, it expected to “make money” by selling power for more than it costs to buy it. That money pays consultants and overhead. But now the amount it expects to get is far lower than initially planned. In April, it expected to make $3.9 million over the next five years. Now, it expects to make $1 million. This assumes that Solana Beach will continue to sell power for 3 percent less than SDG&E does. Wade also recently suggested that the city could raise prices slightly, though rates would still be set below SDG&E’s.

Officials blamed these revisions, in part, on higher-than-expected energy prices over the summer and higher-than-expected “exit fees” that customers pay to leave SDG&E.

The California Public Utilities Commission recently raised those exit fees, a decision that pleased SDG&E and the state’s two other major utilities. Solana Beach and the community choice trade group CalCCA  were not so happy and recently appealed the decision. An appeal is something the CCAs have to do before they can sue the Public Utilities Commission in court.

The city of San Diego said it already factored those higher fees into its plans.

A formal plan for creating a San Diego CCA is expected to be sent by the mayor to the City Council in January.

In the meantime, SDG&E is so confident that CCAs are taking off that the company is asking to exit the power-buying business so that it can focus on infrastructure projects.

Disclosure: Mitch Mitchell, SDG&E’s vice president for government affairs, sits on Voice of San Diego’s board of directors.

 

How San Diego’s New Government-Run Energy Agency Would Work, by Ry Rivard, Voice of San Diego, December 4, 2018.

Solana Beach’s energy plan could reach deficit

While Solana Beach’s community choice aggregation program has met city expectations this year, consultants are cautioning that revenues could be lower than projected in the coming years.

During the first three months of the city’s Solana Energy Alliance (SEA) program — which Solana Beach launched in June to further reach its goal of using 100 percent renewable energy by 2035 — the city has collected about $1.1 million in net results, which is about what the city had anticipated. City staff also anticipate revenues to continue to come in higher than projected and are looking at ending the year at about $1.1 million.

“We’re trending generally right on schedule of where we thought we would be, and actually are doing a little bit better,” a consultant said at the Nov. 28 city council meeting.

Additionally, the SEA, an alternative to San Diego Gas and Electric (SDG&E), is serving about 92.1 percent of eligible residential customers and 99.2 percent of commercial customers. About 94 percent of total electricity used in Solana Beach is provided by SEA.

But the financial outlook for the coming years appears to be a bit grimmer, said Jeff Fuller, a consultant for The Energy Authority (TEA).

In April, the city had forecasted that by the end of 2022, cumulative net revenues would be about $3.9 million. Now, the city is looking at a number closer to $1 million.

Fuller said this reduction can be attributed to an increase in energy costs and generation rates from SDG&E. The Public Utilities Commission also recently decided to increase the exit fees that residents pay SDG&E to purchase energy elsewhere. Those fees could rise as much as 50 percent, according to a city report.

Current average bill savings also haven’t met city expectations. The savings equate to about 2.2 percent, higher than the originally established 3 percent savings set by the city. City staff said those rates would stay in effect until Jan. 1, when SDG&E updates its rates.

While the council members appeared a bit disheartened regarding those results, they remained optimistic.

“When I was reading the report, it seemed a little like, ‘Gosh darn, the numbers aren’t where I want them to be,'” said council member Lesa Heebner. “But we’re going to survive and flex with this as part of the local control that we’re able to have with the CCA.”

 

Solana Beach’s energy plan could reach deficit, by Brittany Woolsey, Solana Beach Sun, November 30, 2018.

In wake of community choice, SDG&E seeks new contract with Otay Mesa power plant

The day after Mayor Kevin Faulconer announced a landmark public power-buying program for the city, San Diego Gas & Electric backed away from its long-standing position that it was legally obligated to purchase a natural gas-fired plant in Otay Mesa for $280 million.

Instead of acquiring the plant, SDG&E told the California Public Utilities Commission in a letter last month that the company wants a new five-year contract with the owner, Calpine Corp., for rights to the power generated by the Otay Mesa Energy Center.

SDG&E is seeking the agreement, likely worth hundreds of millions of dollars, even though the company acknowledged it may not need the electricity because San Diego and other cities are forming power-buying alternatives known as community choice aggregation, or CCAs.

“SDG&E could be serving less than half of the load in its service territory within the next few years,” utility executives told regulators in a Oct. 26 letter. “Departure of the city of San Diego alone eliminates SDG&E’s need for the (Otay Mesa) resource.”

Company officials said the proposed Calpine agreement is a good deal for ratepayers even though SDG&E could pay more under the contract than it would spend to buy the plant outright.

“The agreement pricing and cost is confidential, and SDG&E believes the agreement is beneficial for customers by reducing costs,” spokesman Joseph Britton wrote in an email. “The agreement has been submitted to the CPUC for (its) concurrence and approval.”

Under California Public Utilities Commission rules, contracts between utilities and power generators remain confidential for three years. Even after that, the amount consumers pay under specific agreements is difficult to ascertain because the rates are often combined in public reports rather than broken down individually.

SDG&E said the proposed five-year deal was reviewed by a committee of commission staff and other stakeholders to ensure the price is reasonable.

But environmentalists and consumer advocates are skeptical.

“Buying more expensive polluting gas as we transition to 100 percent renewables is unnecessary and unjustified, and will be a bad deal for ratepayers and clean air,” said Nicole Capretz, the Climate Action Campaign executive director who was instrumental in convincing Faulconer to pursue community choice in San Diego.

Under CCAs, public entities decide what sources of electricity they want. Most choose renewable sources like wind and solar rather than less climate-friendly power plants like the one in Otay Mesa, which burns natural gas.

Investor-owned utilities like SDG&E continue to maintain power lines and process billings under the community choice model.

CCA members who leave the traditional utility are charged an “exit fee” to compensate utilities for their longer-term investments. According to estimates from SDG&E, the San Diego fee will be increased from 2.5 cents to 3.3 cents per kilowatt-hour. That would equate to an exit fee of $16.50 per month for a prospective residential customer using 500 kilowatt hours a month.

The proposed agreement between Calpine and SDG&E may be an effort by each side to buy time until the rules governing community choice are more clear. It’s possible neither company wants long-term ownership of a fossil fuel-burning plant at a time when California is moving toward 100 renewable power.

“From a risk perspective, SDG&E believes a shorter-term capacity agreement is relatively more attractive in an environment where the resource adequacy and procurement model in California is in the process of fundamental reform,” SDG&E wrote to the commission.

In his Oct. 25 announcement, Faulconer said community choice aggregation would save consumers money and allow the city to meet its climate goals years ahead of a state mandate that 100 percent of California electricity comes from renewable sources by 2045.

“I want San Diego to lead this region into a cleaner future,” the mayor said.

In its 2019 rate-setting proceeding now before the utilities commission, initiated before Faulconer embraced community choice, SDG&E asserted that it was legally obliged to purchase the Otay Mesa plant and requested $280 million in future billings to finance the purchase and millions more to operate the facility. No decision has been issued in that application.

The Otay Mesa Energy Center can generate just over 600 megawatts, enough electricity to power some 330,000 homes. It opened in 2009 after Calpine secured a 10-year agreement with SDG&E. The original contract expires next October.

Even before the plant opened, the utilities commission added language to the deal granting Calpine the right to sell the facility to SDG&E for $280 million prior to April 2019. The same amendment, known as a put-call option, gave SDG&E the option to require Calpine to sell it the plant for $377 million.

The utility said without the five-year agreement, Calpine would exercise its right under the put-call option.

“SDG&E evaluated a number of factors and believes that, as compared against the ownership option, the proposed contract is beneficial to customers,” Britton wrote.

Bill Powers is a board member of the Protect Our Communities Foundation, a San Diego nonprofit that is opposed to SDG&E contract. Ratepayers already were charged hundreds of millions of dollars for power from the Otay Mesa plant and a new agreement is unnecessary, he said.

“In effect, it’s an end run,” Powers said. “The whole deal was squirrelly from day one. That put-call option was always difficult to defend.”

The Protect Our Communities Foundation has called on the commission to change its previous decision granting Calpine and SDG&E rights to buy and sell the Otay Mesa plant.

The put-call option was not the only unusual aspect of the original Calpine-SDG&E deal.

According to a one-time utility lawyer, former utilities commission president Michael Peevey coerced SDG&E into signing the 10-year contract with Calpine in exchange for permission to acquire the Palomar Energy Center in Escondido.

Kelly Foley, who was a lawyer for SDG&E sister company Sempra Energy Resources back in the 2000s, told a state Senate committee in 2015 that Peevey made it clear that SDG&E would not be permitted to buy the Escondido plant if it did not sign the $740 million Calpine deal.

“It’s important to relay to the Legislature that while it’s problematic, what’s more problematic is that it was business as usual,” Foley testified before the Senate Committee on Energy, Utilities and Communications.

Lawmakers on the committee, which is chaired by Sen. Ben Hueso, D-San Diego, asked no questions and took no action as a result of the testimony. SDG&E issued a statement at the time defending the contract and saying it had complied with all commission rules.

The Foley disclosure came about six months after the California Attorney General’s Office opened a criminal investigation into state utilities commission practices.

The commission spent more than $12 million on private lawyers in response to the probe.

Despite judges finding probable cause that felonies were committed and issuing at least six search warrants, no charges resulted from the criminal investigation.

 

In wake of community choice, SDG&E seeks new contract with Otay Mesa power plant, by Jeff McDonald, The San Diego Union-Tribune, November 21, 2018.

SDG&E Is Looking to Leave the Power-Buying Business

In a dramatic sign of California’s changing energy market, San Diego Gas & Electric wants to stop buying and selling electricity.

In recent days, the company has asked lawmakers to introduce legislation that would let SDG&E reduce its role – while also pushing the state to enter the energy market in a big way.

The company’s vision could eventually require the state to buy out its long-term power contracts and possibly pay the company for several natural gas-fired power plants it owns.

SDG&E is pitching this idea as the company prepares to lose about half of its power customers within the next few years.

Last month, San Diego Mayor Kevin Faulconer said he wants to form a “community choice” agency, known as a CCA, to buy and sell power on behalf of the city’s 1.4 million people. Other smaller cities across the county are likely to join that effort, creating an electricity buyer’s club that will compete with SDG&E and leave the company with more power than it can sell.

“We think it makes better sense for SDG&E to eventually move out of the commodity role,” said Kendall Helm, the company’s vice president of energy supply. “But it’s important to always provide clean, safe and reliable delivery to all customers in our service territory.”

That may sound like it’s bad for business, but it may be more of an opportunity. A well-run utility can make a steady profit from delivering power.

SDG&E – one of the region’s largest employers – makes most of its money that way, which is why its bottom line won’t be at much at risk if it stops selling power. The company already gets guaranteed revenue from the sprawling system of power lines and cables it’s built over the last century to each home and business in the region. It also delivers natural gas.

Instead, the company is looking to shed the risk it now faces trying to buy power for a customer base that is looking to jump ship.

“Signing contracts that are 10 and 20 years in length while the cities are discussing the possibility of joining together to buy their energy from a CCA provider will be tricky to say the least and thus we are looking at what the best options are for the near future related to our efforts,” SDG&E’s vice president for government affairs, Mitch Mitchell, said in a Nov. 14 letter to state Sen. Ben Hueso. (Disclosure: Mitchell sits on Voice of San Diego’s board of directors.)

For years, most California power companies did it all – they owned both the power and the lines that delivered it to customers.

Now, following years of deregulation and changes in the industry, the state’s three big energy utilities – Southern California Edison, Pacific Gas & Electric and SDG&E – no longer own all of the power they deliver. Much of their power comes from long-term contracts they signed with other companies.

Even that market is eroding as governments enter the energy market.

SDG&E’s parent company, Sempra Energy, sees that and recently paid just under $9.5 billion to control Texas’ largest utility, Oncor, which only delivers electricity.

In the future, SDG&E could look more like Oncor.

The question is how to get there.

A draft bill, which Hueso’s office provided, shows what SDG&E is asking lawmakers to consider. The company urges the state to create a way for the company to sell off its long-term power contracts to a “state-level electrical procurement entity.” The first step would be a state-level task force to sort through all the issues involved, which would be many.

Matthew Freedman, a staff attorney for The Utility Reform Network, said there are already discussions about the state stepping in to help develop renewable power resources. But those discussions are about developing new power – like geothermal projects in Imperial County – not paying companies for existing contracts.

“That is the legitimate part of what SDG&E is teeing up, but I don’t think they are the right messenger,” he said. “Their motives are not pure on this, and what they have put on the table now is more of a manifesto than an actual proposal.”

For one thing, it’s not clear what state agency would step up to pay for all of this.

One power-buying entity already exists at the state level, a small division within the state Department of Water Resources known as California Energy Resources Scheduling. The division – known as CERS by the few people who know about it – was created in 2001, during the energy crisis, to buy and sell power to avoid rolling blackouts across the state. But in the nearly two decades since the crisis, only a skeleton crew now runs the division, mostly to ensure the state is fully compensated for the power it bought years ago.

There’s also the matter of the power plants SDG&E does own – four plants that generate power by burning natural gas. The draft bill would make sure the company is “fully compensated” for those plants in certain scenarios. This could put the state in the awkward position of paying for fossil fuel-fired power even though California lawmakers this year set a goal of having all electricity sold in the state come from renewable resources by 2045.

SDG&E said it’s already taking steps to minimize the number of gas-fired power plants it owns. For a while now, it’s been expecting that it would be forced to buy another gas-fired plant from Texas-based energy company Calpine for $280 million. The forced sale is part of a bizarre deal involving former California Public Utilities Commission President Michael Peevey.

Helm said SDG&E has worked out a deal with Calpine that would not require SDG&E to buy the plant.

SDG&E gets the rest of its power – roughly three-fourths of the electricity it sells – from other sources, largely long-term contracts it signed with wind and solar farms across the southwestern United States and northern Mexico. It cannot make money on the power it buys and then resells from customers.

 

SDG&E Is Looking to Leave the Power-Buying Business, by Ry Rivard, Voice of San Diego, November 19, 2018.