After more than a year of meetings with government officials from communities around the region, the city of San Diego has invited seven cities and unincorporated areas of the county to join forces and create a community choice energy program that would offer an alternative to San Diego Gas & Electric.
The city made the offer earlier this month in a memo to city governments in Chula Vista, La Mesa, Santee, Encinitas, Carlsbad, Del Mar and Solana Beach as well as the County of San Diego. The memo included an attachment that contained a detailed look at how the area’s first foray into what is called Community Choice Aggregation, or CCA, would be established and how it would run.
To get the proposed CCA up and running by 2021, the city has set a deadline of Oct. 1 for each jurisdiction to adopt the final structure of a regional Joint Powers Agreement, or JPA, that would govern the program.
“Our sense is that we’ve come to the best consensus that we can find among all the cities that makes all of us comfortable,” said Cody Hooven, chief sustainability officer for the city of San Diego. “Now it’s going to be up to city councils (in each respective jurisdiction) to say, do we like this or not? … I think they will.”
Hooven and other CCA supporters may not have to wait long to see which way the political winds are blowing.
The city councils in La Mesa and Chula Vista are scheduled to address the CCA issue Tuesday and it’s expected to be on the agenda of the Santee city council later this month.
Although Mayor Kevin Faulconer has already come out in favor of creating a CCA, the San Diego City Council still has not formally decided whether to join the growing number of California entities that have adopted community choice. A vote is expected at city council in mid-September.
How does a CCA work?
Under a traditional utility model, an investor-owned utility like SDG&E handles everything — purchasing the sources of electricity (natural gas, solar, wind, etc.) to meet the needs of energy customers in its service territory, maintaining the transmission and distribution lines (poles, wires, etc.) that deliver electricity and handling the billing and other customer services.
In a community choice energy model, the utility still assumes all those responsibilities but one — the CCA takes over the purchasing of electricity sources.
In the nine years since the first CCA in California was established in Marin County, CCAs boast they can deliver cleaner sources of power at rates that are competitive or lower than traditional power companies.
There are now 19 CCAs in the state, serving roughly 10 million customers.
The city of San Diego hired a consultant to run the numbers and it predicted a CCA in the area can offer rates about 5 percent lower than SDG&E and can generate an average of $110 million per year.
But CCAs have their critics who, among other things, call the relatively nascent community choice movement a fad that could leave communities vulnerable to unexpected fiscal consequences. They point to the city of San Diego’s track record that includes missteps with pension funding and water meter overcharges and worry trouble looms by jumping into a rapidly changing and complex energy sector.
An enticement to join the JPA
Rather than having the city of San Diego form a stand-alone CCA, city officials have opted to push for a regional model that would include other cities and the county. Their thinking is that by forming a JPA, the entities can create an organization that is legally separate from each jurisdiction. A joint agreement can institute a firewall so that if the CCA runs into financial problems, the general funds of each member will be protected.
Also, more jurisdictions in the CCA can provide for economies of scale when it comes to negotiating power purchase agreements.
Amid the details in San Diego’s invitation, the city has offered to assume the startup costs associated with creating the regional JPA and the CCA — things like compiling the respective energy loads for each jurisdiction, creating business and implementation plans, hiring a financial adviser and, eventually, an energy services provider.
Hooven said the startup costs come to about $300,000 from the city’s general fund. If the CCA is formed, the newly created joint powers agency will pay back the money to the city from its expected returns. If a CCA is not formed, the city will have to eat that amount.
“Being the biggest (entity) in the group, it made sense for us to do that,” Hooven said. “And it was a convenience and a benefit to the smaller cities.”
How votes would work
The CCA would be run by a board. Under the framework offered by the city, each jurisdiction would have one vote.
However, there is an option to have a weighted vote if a number of hurdles are cleared. Here’s how that would work:
Let’s say the regional JPA consists of seven jurisdictions, including the city of San Diego. If an item came resulted in a 4-3 vote and three board members requested a weighted vote, a second vote would be called.
Weights are determined by how much electricity load each jurisdiction accounts for in the CCA each year. On the second vote, it would take “aye” votes from members whose combined load came to at least 66.7 percent in order for the second vote to carry the day.
Depending on how many members are in the JPA, the city of San Diego will make up roughly 60 percent or more of the load but the city has agreed to cap its weight on votes at 49 percent as a concession to make sure smaller jurisdictions don’t get steamrolled.
“We felt this was a good, medium ground to get the (legal and financial firewall) protections of a JPA that we wanted,” Hooven said.
Erik Caldwell, deputy chief operating officer for the city of San Diego, said the framework’s voting structure is the norm for other CCAs in California.
As for the everyday operations of running the CCA, like other community choice programs in the state, the proposed San Diego JPA would hire a third party with experience in energy markets to perform the scheduling transactions needed to procure sources of power for the CCA. The contractor will be paid by the CCA, using rates charged to its customers.
On the docket
On Tuesday, the La Mesa City Council will address a couple of issues dealing with CCAs. The session begins at 6 p.m.
The first is whether to accept the draft of a feasibility study compiled by a consultant from the Seattle area. Among the findings, EES Consulting predicted a CCA consisting solely of La Mesa, Chula Vista and Santee could result in 2 percent savings for customers compared to SDG&E. The firm estimated a regional JPA like the one the city of San Diego backs would offer savings in rates of “at least” 2 percent.
The other item on Tuesday’s agenda calls for the city council of La Mesa to consider — but not yet commit to — entering into a regional JPA.
Five members make up the La Mesa City Council and Councilman Bill Baber is voting in favor of proceeding with a regional CCA.
“I think La Mesans want it,” Baber said. “And we’re obligated to meet our Climate Action Plan. It’s not only the legal thing to do, it’s the right thing to do. And I think we can make it work with a big partner like San Diego.”
La Mesa’s Climate Action Plan calls for the town to reduce greenhouse gas emissions from 2010 levels by 15 percent by next year and cut them 53 percent by 2035.
Santee’s city council is expected to discuss the issue Aug. 28.
As per state rules, if a CCA is formed, all the electric customers automatically get signed up. If customers want to remain with the utility in their service area, they can but they have to contact the CCA to go through the opt-out process.
Opting out is free, provided it is done within the first few billing cycles (usually within 60 days). After that, a small fee may be charged, although some CCAs don’t impose opt-out fees.
City of San Diego invites 7 cities and the county to join a regional community choice energy agency, by Rob Nikolewski, The San Diego Union-Tribune, August 12, 2019.