Local Governments Cautious About Buying Wholesale Power

As a result of legislation passed last year, many California cities began seriously considering taking electricity purchasing power into their own hands and away from bundled utility services. The energy crisis motivated many entities to take aggressive steps to increase local control of the power supply to protect their ratepayers. But in spite of their initial enthusiasm, some of those same cities and counties are proceeding cautiously because of potential financial risks. In early September, the California Public Utilities Commission launched a process that set rules for creating community-choice aggregators, which allows entities to buy wholesale power on behalf of residents and businesses. Several cities are following the CPUC's rulemaking procedure closely in the hopes of developing their own aggregation programs, but they are taking it one step at a time. That includes maverick San Francisco, which was unable to take over Pacific Gas & Electric's local transmission operations two years ago. The city heads a group of 30 municipalities dubbed "Cities for Community Aggregation," and despite being at the forefront of the aggregation movement, it is watching its step. San Francisco plans to do an intensive study, which includes participating in the rulemaking process, before jumping into the power market. "We are keeping an open mind," noted Fraser Smith, San Francisco Public Utilities Commission utility specialist. Promoters of community aggregation, including consumer advocate Paul Fenn, said there are many benefits from local purchasing control. These include cost savings, greater reliability, and the opportunity to choose greener power sources, such as solar and wind. "It is a very creative situation with good profit margins for suppliers," he added. "It has an emphasis on security, an emphasis on suppliers insuring rates and reducing dependency on natural gas." Entering a fluctuating wholesale energy market, however, involves financial risks, which predictably makes some cities nervous. San Francisco, which owns a power-generating facility at Hetch Hetchy, appears to be in the best position to start an aggregation program. Although the facility is unable to generate power for the entire city, the cushion of owning hydroelectric power generated by water flowing down from the Sierras softens the impact of fluctuations in energy prices. Aggregation could also help speed the closure of two polluting power plants within the city's borders. These advantages will be weighed carefully against the fiscal risks, Smith said. Across the bay, Neal de Snoo, the city of Berkeley's energy officer, expressed similar caution. "The city has taken no position on whether we want to become an aggregator," he said. "It could potentially lower rates and give us better control over energy in the future in terms of choosing resources." But then again, aggregation could increase costs for the city and the community, he added. That cost uncertainty does not dampen the enthusiasm of Albert Vera, a Culver City council member leading a consortium of 10 Southern California cities towards aggregation. "Power is just like business: you buy when it's low and you use it when it is high," he said. Vera still regrets that Culver City lost its bid to take over Southern California Edison's transmission lines by one city council vote in the mid-1990s. A takeover would have generated $11 million to $15 million in revenues for the city. It also would have allowed the retirement of local utility user taxes, which at 11 percent are the highest in the state, according to Vera. Aggregation is not new in California. It was allowed under the 1996 deregulation law, AB 1890, but included a provision that undermined it. That measure required local governments to ask each citizen or business whether they wanted to participate in their community's aggregation program?an "opt-in" process that proved too burdensome a job for most local governments. Passed in 2002, AB 117 by Assemblymember Carol Migden (D-San Francisco) changed the process to an "opt-out"?individuals had to elect not to be part of the aggregation program. While requiring public noticing, "opt-out" is less cumbersome and made community-choice aggregation a viable option for many cities and counties. Investor-owned utilities will be affected by a change in the law. AB 117 specifically requires them to transmit the purchased power and provide billing and metering services. David Rubin, PG&E director of service analysis, said the company supports the community's right to aggregate but wants to ensure that customers who remain with the utility are not adversely affected. PG&E will also be looking to see that aggregators pay their share of exit fees to cover the debts it incurred during the energy crisis. Yvonne Hunter, a legislative analyst for the California League of Cities, said the state's three IOUs worked constructively on aggregation measures but parted company with the locals when it came to "taking over poles and wires." In spite of the risks and opposition, some cities remain interested in owning their own utilities. Having the ability to buy and sell wholesale power may be the first step. In the meantime, the CPUC rulemaking process is open to cities and other interested parties. Initial comments will be taken through September 22. A prehearing conference workshop is slated for October 7.

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Local Governments Cautious About Buying Wholesale Power

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