Community Choice Makes Inroads, Roadblocks Remain

By Published On: October 3, 2008

Community choice is getting off the ground in California six years after lawmakers authorized local agencies to purchase bulk electricity for investor-owned utility customers. The San Joaquin Valley Power Authority is California’s first community choice aggregator. Representing eleven central San Joaquin Valley cities and Kings County, it plans to start providing electricity to its customers early next year. California has lagged behind Massachusetts and Ohio, which have offered community choice aggregation for several years. A dozen other California cities and counties–predominantly in the San Francisco Bay Area–are considering adopting community choice programs to pool purchases of electricity for residential, business, and municipal customers in their areas. Pooling power purchases aims to enable local agencies to buy power at cheaper rates than investor-owned utilities and exercise local control over energy policy. Supporters also say it can increase renewable energy to reduce greenhouse gas emissions. However, local officials caution that the benefits must be weighed against potential financial risks to cities and counties that lack capital resources, requiring them to use general funds to secure financing for community choice aggregation. “It’s complex. You’re measuring carbon emissions (reductions) and local control benefits against financial risks,” said Neal De Snoo, City of Berkeley’s energy officer. “It’s unlikely anyone will loan capital to a new” Joint Power Authority, which would be the bulk purchaser. Assembly Bill 117, the community aggregation law authored by former San Francisco Assemblywoman Carole Migden (D), was enacted in 2002 in the aftermath of California’s 2000-01 electricity crisis. The investor-owned utilities would continue to deliver the power over their distribution lines and provide a single electric bill to retail customers who can opt out of community choice programs. About 10 to 12 percent of retail customers in Massachusetts and Ohio have opted out of community choice aggregation programs. San Francisco adopted a community choice ordinance in 2004 and a draft implementation plan last year after voters approved a 2001 bond measure to provide public funding. San Francisco plans to issue a request for proposals in six to nine months for 360 MW of renewable generation, said Paul Fenn, director of Local Power, the consulting firm that is developing the RFP. The proposal would entail spending $600 million in revenue bonds over the first three years to construct a 150 MW wind farm, achieve 170 MW of demand side reductions, plus add 103 MW of photovoltaic and other renewable distributed generation, he said. The goal is to reach a 51 percent renewable portfolio by 2017. The contract, if approved by the San Francisco Board of Supervisors, will be worth $5 billion over the next 20 years, Fenn said. “This is the most advanced scale renewable contract in the world. The key is if the energy industry can rise to this challenge.” Berkeley and neighboring Oakland and Emeryville are investigating creating a joint power authority like San Joaquin Valley’s to provide electricity to customers in their cities now served by Pacific Gas & Electric. The three East Bay cities have commissioned a business plan to assess the benefits and risks of community choice aggregation that is due to be released later this month. Berkeley is interested in increasing its renewable energy portfolio to meet its ambitious goal of reducing greenhouse gas emissions 80 percent by 2050 as mandated by Measure G, passed overwhelmingly by Berkeley voters two years ago. Marin County and cities will vote this fall on whether to join Marin Clean Energy, which will likely be created as a CCA in December, said Dawn Weisz, a sustainability planner for Marin County’s Community Development Agency. The plan envisions two different renewable energy options. Customers could opt for a 25 percent renewable plan for the same price or slightly less than PG&E’s rates, or a 100 percent renewable option that would initially cost 8 or 10 percent more than PG&E’s rates, but decline over time. Weisz noted that PG&E’s costs have increased an average of 3.4 percent annually. The utility asked the CPUC in June for a 10 percent rate hike. Marin County’s business plan has identified a potential 800 MWs of renewable energy projects that could be built over time in the county, including solar, wind, methane landfill gas, biomass, agricultural waste, and ocean tidal energy. In the short-term the CCA would have to purchase its projected 860 GWh/year renewable load from outside sources. The plan estimated that Marin County energy consumers could achieve a 5 MW annual reduction through energy efficiency measures. The county could reduce its greenhouse gas emissions by 70,000 tons the first year and 350,000 tons after 10 years by installing solar panels, lighting retrofits, car pooling, and enhanced use of public transit. Sonoma County’s Climate Action Plan is built around community choice aggregation and renewables, said Fenn, who served as the county’s consultant. The plan would achieve a 66 percent RPS by 2015 with no rate increase based on eliminating natural gas for home heating and replacing it with geothermal heat, he said. The California Public Utilities Commission approved the San Joaquin Valley Power Authority’s community choice aggregation plan–the first in the state–in April 2007. The CPUC gave the power authority the green light to purchase power for over 112,000 residential, business, and municipal customers. The SJVPA conservatively estimates that it will save ratepayers at least 5 percent on their electric bills from Pacific Gas & Electric and Southern California Edison. The fast-growing central San Joaquin Valley is a constricted region that lacks adequate transmission to supply power to a rapidly increasing electric load. The SJVPA will promote reliability by purchasing power from new generation projects in the region, officials say. The SJVPA has contracted with the non-profit Kings River Conservation District as its administrative services agent and primary energy service provider. The KRCD owns 180 MW of natural gas peaking power plants and 165 MW of hydroelectric generation, much of which is under long-term contract to the State Department of Water Resources, said Cristel Tufenkjian, a district spokesperson. The California Energy Commission is reviewing the Kings River Conservation District’s application to build a 565 MW combined cycle KRCD Community Power Plant to serve the region. Construction is expected to begin next year on the natural-gas fired project, the first new baseline power plant in the central San Joaquin Valley since PGE’s Helms Plant came on line in 1984. The KRCD power plant is scheduled to begin operating in 2012. The KRCD is also contracting with Clean Tech America to supply electricity from a solar energy project that has not been built yet, Tukenkjian said. Meanwhile the SJVPA has entered into an interim eight-year contract with CitiGroup Energy to purchase power for its customers at a guaranteed price below PG&E’s electricity rates. The contract contains a clause allowing the SJVPA to substitute CitiGroup’s power purchases with KRCD generation as it becomes available, Tufenkjian said. The CitiGroup energy services contract will serve as a bridge to enable the SJVPA to launch community choice while building local generation to supply long-term power to its customers, she said. The SJVPA board has pledged not to give final approval for the contract or begin offering community choice until -CitiGroup must guarantee that it can supply power at a discount rate that will allow the SJVPA to aggregate electricity at 5 percent below PG&E’s rates. The contract prohibits CitiGroup from raising its power costs by over 2 percent a year. -CitiGroup must verify its energy sources to enable the SJVPA to meet the state’s 20 percent renewable portfolio standard and greenhouse gas reduction mandate. The SJVPA is seeking to procure more renewable energy, including small hydro, solar, wind, biomass and geothermal to meet its 20 percent RPS by 2010. The SJVPA delayed its planned startup this fall because of market conditions and regulatory issues, she said. After initially staking out a neutral position on community choice aggregation, PG&E opposed the SFVPA when the plan came up for a vote before city councils and county supervisors. Fresno and Tulare County pulled out of the SFJPA after PG&E began lobbying against community choice, Tufenkjian said. Moreover, PG&E and Southern California Edison insisted that all member cities and counties in the authority assume joint and several liability for the SJVPA’s debt if it incurred financial difficulties. The SJVPA petitioned the CPUC to remove the liability requirement from its utility service agreements. The CPUC agreed and modified it to consider liability on a case-by-case basis. PG&E argued that all members of the authority should be held liable to protect its bundled customers from paying the costs if the SIVPA fails and PG&E has to buy expensive replacement power in the spot market. “They knew that none of our cities and county would go forward with that kind of liability,” Tufenkjian said. Ironically, the San Joaquin County agencies opted for community choice aggregation instead of municipalization to avoid a protracted battle with PG&E, she said. PG&E’s position has not changed. It still supports community choice in principle provided its customers are able to make an informed choice about their power supplier, said Darlene Chiu, company spokesperson. However, PG&E has actively opposed every community choice aggregation plan in its service area to date. “We support customer choice, but we haven’t seen a business plan that makes sense and protects customers,” Chiu said. PG&E opposed the San Joaquin Valley CCA plan because the utility had concerns about the financing, how the rates would be structured, the energy sources and prices, the power purchase agreement, and what protection customers would have, she said. “They say they’re going to deliver energy at 5 percent below PG&E costs, but where is that energy coming from?” PG&E, which has fought public power campaigns to take over its electric system in San Francisco for years, also opposes the city by the bay’s community aggregation plan. The utility views the plan’s energy assessment as “seriously flawed” because it includes Hetch Hetchy hydroelectric power, as well as energy efficiency and demand reduction programs as part of its energy mix, Chiu said. PG&E can buy cheaper power than a community choice aggregator to serve its large customer base because of economies of scale, Chiu added. PG&E likewise reviewed Marin County’s community choice aggregation plan at the request of the board of supervisors and determined that it was financially risky, Chiu said.

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