Focus: More Cities, Counties Choosing Green Energy Sources
OREANDA-NEWS. August 16, 2016. Lauded as a leader in plugging homes and businesses into solar and wind farms, the state requires utility companies get at least a third of their energy from renewable sources by 2020 and half by 2030.
But for a growing number of elected leaders from Southern California to Humboldt County, that timeline isn’t nearly aggressive enough.
Cities and counties in California are now widely pursuing or exploring a public energy program that allows elected officials to take the authority to buy and sell power away from investor-owned utilities and offer ratepayers up to 100 percent renewable energy.
All but two coastal counties have adopted or are exploring the government program, which has routinely delivered electricity using more renewable energy at slightly lower rates than investor-owned utilities in California.
Known as community choice aggregations, or CCAs, such programs serve roughly half a million homes and businesses in the Bay Area, a figure that’s expected to double in the region in coming months and more than quadruple within the next few years, according to industry watchers.
The government-run operations take the authority to buy and sell power away from investor-owned utilities. The private energy company continues to operate the electrical grid, but elected officials or their appointees decide which power plants to contract with or invest in — whether with developers of solar projects or natural gas plants.
“In the next five years, as these programs come on line, I think you’re going to see tremendous growth (in demand for renewable energy) in the state of California,” said Shawn Marshall, executive director of LEAN Energy U.S., a national nonprofit assisting in the potential launch of nine CCAs from Santa Barbara to Davis.
Just how much opposition utilities will put up to these increasingly popular programs is unclear.
State law has forbidden utility companies for the last five years from publicly criticizing the energy programs. To sidestep those rules, San Diego Gas & Electric has become the first investor-owned utility in the state to propose a shareholder-funded marketing division. The California Public Utilities Commission staff has recommended approval of the utility’s request, and the commission is scheduled to vote on it in August.
“The CPUC rules limit the ability for policymakers and customers to be able to consider all views and all options, as well as the potential implications as these important and far-reaching issues are considered,” said Christy Ihrig, communications director for SDG&E.
“The (marketing division) will support the inclusion of more stakeholders to ensure a more robust and well-informed discussion in the future,” she added.
At the same time, some experts have expressed skepticism about whether CCAs can significantly green up the state’s electrical grid, as well as voiced concerns that the government program could be prone to significant price fluctuations.
“I don’t see it being transformative in any particularly positive way, but it could be slightly positive in terms of introducing some competition,” said Andrew Campbell, executive director of the Energy Institute at Haas at UC Berkeley.
“CCAs create these expectations of being able to provide energy at a particular price that’s always going to be lower than the utility, but over time, things may be different,” he added.
So far, California has four CCAs serving hundreds of thousands of people, including Marin Clean Energy, Sonoma Clean Power, Lancaster Choice Energy and, most recently, San Francisco’s CleanPowerSF.
More than a dozen municipalities with more than 7 million people are moving steadily toward implementation of CCAs — including the counties of Yolo, Alameda, San Mateo, Monterey, Santa Cruz, Santa Clara, Ventura and Santa Barbara.
Next spring, Los Angeles County plans to roll out a CCA that could eventually represent as many as 5 million people, starting with unincorporated towns and then potentially pulling in more than 80 cities in that region.
“California counties and cities are outpacing the state in their efforts to move toward greater use of green power,” said L.A. County Supervisor Sheila Kuehl. “L.A. County’s CCA will offer its customers between 50 and 100 percent green power at a competitive cost as early as next year.”
In contrast to similar efforts in other states, adoption of these public energy programs in California have emerged almost solely in coordination with the fight against climate change.
The effort by L.A. County officials, for example, was significantly informed by a coalition of climate activists called South Bay Clean Power, which represents citizens from Beverly Hills to Torrance.
And under pressure from climate activists, the city of San Diego pledged in December to run on all green electricity by 2035, outlining CCA as the primary option for helping to get its 1.3 million residents off fossil fuels.
“CCA is one of the most powerful tools available to tackle the climate crisis because it fundamentally changes the rules of the game,” said Nicole Capretz, executive director of the San Diego nonprofit Climate Action Campaign.
“Decisions can be made locally in the public interest, rather than at some faraway location that mostly cares about lining the pockets of corporate executives,” she added.
Investor-owned utilities have routinely disputed the claim that a drive for profits has affected electrical rates.
“We provide the most reliable electric service in the West while keeping our customers’ bills lower than the national average,” said Allison Torres, communications manager for SDG&E.
In the past, investor-owned utilities have tried to discourage the adoption of CCA through ballot measures, legislation and expensive marketing campaigns.
After a bitter fight in Marin County between supporters of CCA and Pacific Gas & Electric, the Legislature in 2011 barred utilities from using ratepayer dollars to lobby against the program.
Utilities have since downplayed any opposition. Southern California Edison — which declined to comment other than to say it was “neutral” on the topic of CCAs — has garnered a reputation for working with local officials who need ratepayer information from the utility to study CCAs.
PG&E — which started offering a 100 percent renewable energy product after aggregation programs started popping up in Northern California — has tempered its message as well.
“We voiced concerns regarding the business plans associated with the earlier CCA efforts, as we believe that they were not sufficiently robust and represented risks to our customers,” said Brandi Merlo, corporate relations representative for PG&E. “Notwithstanding these concerns, we have cooperated and continue to cooperate with all existing and prospective CCAs.”
In its recent decision to retire the Diablo Canyon Nuclear Power Plant in San Luis Obispo County, the utility cited among other factors “potential increases in the departure of PG&E’s retail load customers to community choice aggregation.”
However, not all utilities may be ready to acquiesce to this new public model for buying power.
SDG&E officials have declined to say whether the utility’s proposed marketing division would attempt to derail CCAs — which are being considered by the city and county of San Diego and a number of North County cities such as Solana Beach and Encinitas.
The marketing division would be run through SDG&E’s parent company Sempra Energy and be forbidden from coordinating with the utility. Details of how such a firewall would work are still being debated at the CPUC.
“The additional insights and expert perspectives that could be offered by an (marketing division) would support a more robust and well-informed discussion, and create a stronger foundation for meeting the energy and environmental needs of the customers we serve long into the future,” said SDG&E’s Torres.
For more than a century, consumers have largely either bought power from investor-owned or municipal utilities. In both cases, the public or private utility maintains its own electrical infrastructure, as well as develops its own power plants or buys electricity from a third party.
Not quite as ambitious as a municipal utility, a CCA’s service area can be as small as a single municipality, like Lancaster in Los Angeles County. Or it can extend over wider areas, like Marin Clean Energy, which serves cities and unincorporated areas in Marin County and Napa County, as well as a number of other nearby cities.
When elected officials vote to form a CCA, ratepayers are automatically enrolled but have the option of opting out and reverting to utility service. For example, one in five ratepayers have opted out of Marin Clean Energy and back to PG&E.
Ratepayers’ bills reflect the new setup by breaking out the CCA’s charge for energy use from the utility’s charge for operating and maintaining the powerlines and other electrical infrastructure.
CCAs usually offer two pricing tiers, a default product and a slightly more expensive option for 100 percent renewable. The default renewable energy content currently ranges from 35 percent in San Francisco to 52 percent in Marin.
While solar or wind power isn’t literally delivered to a customer’s house, the more CCAs procure renewables on behalf of their communities, the more green energy flows on the California grid.
The strategy of CCAs have largely been to procure as much renewable energy as possible while still staying just under the rates of the competing utility.
Advocates argue that CCAs can be competitive with utilities because they don’t have to satisfy shareholder demand for profits or pay for such things as large executive salaries.
“We do not have nearly the level of administrative overhead or shareholder payments that investor-owned utilities do,” said Marshall with LEAN Energy U.S. “I think the very first thing that utilities pay for is expensive overhead in terms of salaries and operational expenses.”
At the same time, some critics have expressed concern about whether these public programs will be able to deal with volatility in the energy market, especially if prices increase for fossil fuels like natural gas.
Part of the comparative rate advantage enjoyed by CCAs over investor-owned utilities has resulted from recent drops in the cost of solar power. Private utility companies have expressed frustration that state mandates to procure renewable energy forced them into long-term contracts before the dip in prices.
Procuring energy might end up being a tricky business for cities and counties, said Campbell of the Energy Institute at Haas.
“That’s a very complex business,” he said. “It’s a very expensive business. There’s risk involved in it. So as a citizen or taxpayer in a particular jurisdiction, I would be very concerned.
“Do they have the level of expertise to anticipate those risks and hedge against them?” he added. “Smaller CCAs may have more difficultly absorbing the ups and downs, where for a big utility it may be easier to.”
Going forward, one of the most contentious issues is expected to be over what’s often called the exit fee.
As ratepayers join CCAs, utilities are left with less revenue to cover long-term power contracts, which could drive up rates for the customers who remain with the utility.
To prevent this, CCAs are required to pay the exit fee to compensate utilities for the power the company purchased on behalf of these defecting customers. When fees go up, CCAs can have a more difficult time staying under a competing utility’s rates.
Are CCAs really a threat to utilities?
Because electric rates have been officially decoupled from profits, selling energy is generally a wash for investor-owned utilities.
Rather, utility companies increase their profits by building big infrastructure projects like Sunrise Powerlink, SDG&E’s 500,000-volt transmission line.
In its first year in operation the line produced roughly \\$67 million in earnings as part of a guaranteed 11 percent rate of return on such investments. Customers pay for such projects through increased rates.
CCAs don’t necessarily threaten a utility’s business model.
“There are states in the U.S. that have retail competition and several that have community choice aggregation, and it has not been the death of utilities,” Chuck Goldman, a scientist at the Lawrence Berkeley National Laboratory’s Electricity Markets and Policy Group. “There are utilities that are just distribution utilities that are doing just fine.”
However, CCAs could disrupt utility profits in theory, especially if the public energy programs strongly promote what’s known as a “decentralized” approach — smaller renewable installations like rooftop solar panels, which don’t require massive infrastructure investments.
“Once you have enough people with solar power, they’re basically defecting from the grid and everybody else is stuck with the higher costs, and high costs will drive desire for solar power,” said Jan Kleissl, co-director of the California Solar Energy Collaborative at UC Davis Energy Institute.
“(Utilities) are concerned about the industries like Solar City and similar companies that would actually now be able to control the power grid without utility infrastructure,” he added.
Climate activists backing CCAs have argued that rooftop solar hasn’t been fully utilized largely because utility companies don’t have an incentive to promote it.
Utility companies deny this, pointing to the significant expansion of rooftop installations in their service territories over the last decade.
Under the state’s net metering program, customers can zero out their bills but get very little compensation for any power they produce beyond what they consume.
CCAs like Marin Clean Energy allow customers to cash out credits earned on any excess solar energy they generate at the retail rate. This year, the CCA paid more than \\$1 million for excess solar from about 3,000 customers.
Still, CCAs will still likely have to procure energy from a wide mix of sources such as utility scale solar and wind farms that could keep utilities building, for example, large powerlines into the desert into the foreseeable future.