September 16 – SDUT – Rob Nikolewski reports – It’s got a technical, almost mundane, name but don’t be fooled.
Community choice aggregation, or CCA, energy programs have mushroomed across California in the past nine years by taking on one responsibility long the domain of traditional investor-owned utilities such as San Diego Gas & Electric — the purchasing of electricity sources — and putting it into the hands of local governments.
And it’s looking increasingly likely that come Tuesday, SDG&E will no longer be the only name in the area’s power business.
That’s when the San Diego City Council votes whether the city should go forward with the CCA model and, crucially, whether to approve a joint powers agreement that establishes a legal framework to govern the program, which has attracted as many as four other cities in the county.
By all indications, the votes are there to make it happen.
“It’s a major step because it gives the customers full say in what resources will be procured for their electricity needs,” said Gary Ackerman, a utilities and energy consultant with more than four decades of experience in California power issues. “It’s not like we’re getting rid of utilities, but some of the critical elements will be different in terms of what kind of resources will be purchased and why.”
Critics of CCAs warn of risks related to entering the fast-changing energy sector and point to the city’s missteps with pension funding and water meter overcharges but community choice supporters counter by saying CCAs across the state have consistently delivered cleaner sources of power at rates equal to or lower than traditional power companies.
What CCAs do and how they work
For decades, utilities have done it all when it comes to electricity. They have put up poles and wires, purchased the power (natural gas, wind, solar, etc.), delivered it through transmission lines and handled customer service and billing issues.
But in the wake of the California energy crisis that saw rolling blackouts ripple through the state in 2000 and 2001, policymakers gave local governments the ability to make their own choices when it comes to buying sources of electricity. All the other responsibilities are still shouldered by the incumbent utility in a given area so the power companies do not go away.
Not much happened for the first few years until the state’s initial CCA in Marin County went online in 2010. Today, 19 CCAs have launched in California and there are predictions that by 2025 about 80 percent of the state’s load will be served by jurisdictions that have adopted community energy choice.
By taking over the purchasing of power, CCAs can generate revenue that can then be poured into financial reserves to ensure their rates stay equal to or lower than utilities. They can also use the money to establish clean energy programs (such as building electric vehicle charging stations) and investing in renewable energy projects (the CCA first established in Marin County opened a 60-acre, 10.5-megawatt solar farm in Richmond last year).
Since most local governments do not have experience with large-scale energy issues, many CCAs hire outside groups to perform the complex scheduling, contracting and marketing transactions needed.
An Oakland-based consulting group hired by staffers at San Diego City Hall has predicted a city CCA can offer rates about 5 percent lower than San Diego Gas & Electric and generate an estimated average of $110 million per year — or a net income of about $1.75 billion from 2020 to 2035.
Some critics have questioned the accuracy of the numbers but city staff said the estimates have been peer-reviewed twice.
City officials say the consultant took the costs of hiring executives and staff to run the CCA into account when it delivered its business plan.
As per state rules, once a local government adopts a CCA, all of its customers are automatically enrolled. Customers can remain with the investor-owned utility if they want to and can opt out of the CCA — typically at no cost if they make the move within one year.
So far, the number of customers opting out has been low — hovering around 5 to 10 percent.
If San Diego goes forward with a CCA, customers will not receive one bill from SDG&E and another from the CCA. Rather, SDG&E will send out one bill that will have the CCA charge folded in.
Environmental groups have urged jurisdictions to adopt the community choice model as a way to reduce greenhouse gas emissions and address climate change.
While the Legislature last year passed a bill that was signed into law by former Gov. Jerry Brown calling for the state to derive 100 percent of its electricity from renewable energy sources by 2045, the city of San Diego has adopted a legally binding Climate Action Plan to get to 100 percent renewables by 2035 — 10 years earlier than the state mandate.
“The only way we’re going to get to 100 percent clean energy (by 2035) is with a community choice energy program and if we delay, we won’t be able to launch a program until after 2022 or 2023,” said Matthew Vasilakis, organizer for the Climate Action Campaign.
Where it stands now
The money generated by a CCA is designed to go only toward energy-related activities within the program itself. It is not to be diverted, for example, to a city’s general fund to pay for parks, roads, payroll, etc.
Most community choice energy projects in the state form a joint partnership agreement, or JPA, with other cities and jurisdictions in their area.
This is done for a couple of reasons. First, joining forces allows the cities to exercise economies of scale that are advantageous when negotiating contracts with power providers.
But more important, a JPA allows for a greater level of financial protection for the cities taking part. Under the provisions of a joint powers agreement, a CCA is considered a separate, distinct entity with a firewall in place to make sure any debts and obligations cannot be taken from the general funds of the members.
The JPA is governed by a board made up of representatives from each jurisdiction.
After getting approval from Mayor Kevin Faulconer and San Diego’s city council, staffers worked with representatives of other cities and drafted a JPA. Faulconer is an avid supporter of community choice.
As an enticement, San Diego has volunteered to pick up the initial startup costs needed to get the CCA off the ground. The JPA will eventually repay the city through the revenue generated by the program.
The city councils in Chula Vista, La Mesa and Encinitas have taken the city up on its offer. Imperial Beach is expected to join, which would mean the proposed regional JPA would consist of five members for its expected launch date of 2021.
But in recent weeks, another JPA has attracted some interest.
While many city council members in other towns liked elements of the San Diego-led offering, they had issues with one part of it.
Under the San Diego plan, each jurisdiction on the board would have one vote. But following the vote, if three board members request a weighted vote, a second vote could be called.
Weights are determined by how much electricity load each jurisdiction accounts for in the CCA each year. Being the largest single jurisdiction in the CCA, San Diego would account for the biggest share of the load — and hence, a larger share of the weighted vote.
San Diego has offered to cap its weight at 49 percent and said other CCAs in the state with a weighted vote option rarely exercise it. But a number of cities have balked, fearing they could get steamrolled by San Diego and at least one other member, thus eroding local control.
In an almost organic way, the cities of Carlsbad and Solana Beach have partnered to pitch their own JPA in which the dictum of “one member-one vote” would reign. That attracted the city council in Del Mar last week to vote 5-0 to initiate negotiations to join and one day later, members of the County Board of Supervisors expressed interest in taking part.
“One jurisdiction, one vote is a counting that we feel is fair,” said Supervisor Dianne Jacob.
Solana Beach is the only jurisdiction in San Diego County with an existing CCA. Its standalone operation serving about 7,500 customers has been up and running for a year.
The city manager at Solana Beach said its CCA offers rates about 3 percent lower than SDG&E’s but told the board of supervisors that it has had to dip into its reserves to maintain that rate-savings after the California Public Utilities Commission last fall raised the exit fees CCAs must pay utilities each month. The exit fees are required to make sure customers who stick with their incumbent power companies are not forced to shoulder the cost of legacy power purchases utilities made in recent years that were approved by the commission.
EES Consulting out of the Seattle area has made presentations before various city councils and estimated customers outside the city of San Diego will see monthly bills about 2 percent lower than SDG&E.
For CCA critic Bill Roper, a longtime San Diego businessman and former chief financial officer for Science Applications International Corporation, a 2 percent savings does not justify local governments wading into the fast-changing energy sector.
“As a businessman, you make risk-adjusted decisions every day and you would never hype a deal to go with a higher risk proposition to save 2 percent,” Roper said.
So how does SDG&E feel about all this?
Company representatives regularly speak before elected officials debating the CCA issue, reading statements that SDG&E “respects our customers’ right to choose their energy provider and we will cooperate with any governance structure that suits your needs best.”
Earlier this year, though, SDG&E officials told the Union-Tribune that given the rate of CCA adoption and other anticipated changes in the energy sector, the company would prefer getting out of the power-purchasing business altogether.
But the company can’t make the decision on its own, and SDG&E has approached the Legislature in Sacramento with a proposal that would see the state create a separate entity that would handle the buying and selling of electricity. No specific legislation has been introduced yet.
Ironically, the possibility of SDG&E dropping out of the power purchasing game has prompted some elected officials who are otherwise skeptical of community choice energy to jump on the CCA bandwagon.
“SDG&E has been open, it wants to get out of the power business,” said Santee City Councilman Rob McNelis during an August meeting. “So we’ve gotta do something now. There’s no going backwards.”
Tuesday’s city council vote
All these issues set the stage for Tuesday’s vote before the San Diego City Council.
“I have been a consistent supporter of community choice energy,” said Councilwoman Barbara Bry. “SDG&E has been a monopoly. We haven’t had a choice as to where we buy our energy and I think it’s good to give consumers a choice.”
Council members Chris Cate and Scott Sherman have questioned whether city government should enter the electricity business, given problems that include San Diego residents getting overcharged due to mistakes by the water department in the city’s Public Utilities Department last year.
Sherman, at the city council’s environment committee hearing last Thursday, objects to the state rule that defaults every customer to the CCA.
“I own an insurance agency,” Sherman said, “and it would be kind of weird if I went to the government and said, ‘Look, I can save every policy holder in the city 5 percent on their premiums. All you have to do is make sure when they switch they automatically come to my agency.’ I have a problem with that.”
The environment committee on a 3-1 vote sent the CCA issue and the accompanying JPA framework without amendments to the full council, with Bry, Vivian Moreno and Jennifer Campbell casting enthusiastic “yes” votes. Sherman cast the only “no” vote.
CCA supporters will need a majority of five votes on Tuesday to officially make community choice in the city a reality.
A spokesman for council member Mark Kersey said Kersey supports “the concept of a CCA, but he is still reviewing the details of the proposal.”
However, Chris Ward, Georgette Gomez and Monica Montgomery have each voiced support for community choice so it appears there is more than enough support to get the CCA issue across the finish line.
Faulconer does not have a vote.
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