EDITORS NOTE: This piece is from April of 2019. As I was looking back at the recent experiences Carlsbad has had with it's "Clean Energy Alliance" with Solana Beach and Del Mar, I was saddened by how many of these issues were both predictable and avoidable.
"Now, there are 19 government-run community choice energy agencies up and running in California and more to come, including one the city of San Diego, is trying to form. These agencies, known as CCAs, could soon become monopolies in their own right. That’s because they may be the only game left in town. Both San Diego Gas & Electric and Pacific Gas & Electric are looking to exit the energy market." - Ry Rivard - Voice of San Diego
"Now, there are 19 government-run community choice energy agencies up and running in California and more to come, including one the city of San Diego, is trying to form. These agencies, known as CCAs, could soon become monopolies in their own right. That’s because they may be the only game left in town. Both San Diego Gas & Electric and Pacific Gas & Electric are looking to exit the energy market." - Ry Rivard - Voice of San Diego
Over the past several years, many states have implemented energy deregulation in order to create competition among energy providers. This approach has significantly benefited consumers and has provided cost savings, along with favourable environmental impact, innovation, and overall energy choice. Deregulation divides utility-company monopolies by separating production (generation) of energy from its distribution (delivery).
Absent deregulation, electricity and natural gas are provided by local utilities (actually regional monopolies) that control both the production and distribution channels for consumers. Under the branding of "Community Choice Energy," local politicians and their surrogates have been given the powers to negotiate on behalf of their constituents, creating what amounts to the re-monopolization of energy markets.
Through "municipal aggregation" highly-paid (commissioned) energy brokers and consultants could try to limit consumer choices. and create a monopoly of their own. By the utilization of a quasi-public vehicle known as a "Joint Powers Agreement", elected officials (or their designees) routinely enter into multi-year deals with the same companies frequently owned by the utilities themselves or fossil fuels concerns.
Before the communities of North San Diego County enter into the energy business care must be taken that the energy industry “good-old-boy” networks do not have an opportunity to take us down the road to the creation of another monopoly. If you believe that may not happen, ask yourselves what could happen if SDG&E actually exits the energy market? Mr. Rivard states in his Voice of San Diego piece cited above...
"That may sound like it’s bad for business, but it may be more of an opportunity for those companies. A well-run utility can make a steady profit from charging customers for use of poles, wires, cables, and meters that help deliver energy to their homes. PG&E, in bankruptcy, is open to exiting the energy market so it can focus on ensuring its lines don’t spark fires. And SDG&E is also looking to shed the responsibility of buying and selling power in a transforming market."
ANALYSIS
Writing critically about Community Choice Energy is not something I planned to do. There is much cause to be favorably inclined towards the concept in theory, but with the caveat that the pros and cons of CCE need to be discussed in a transparent and deliberative way, in an atmosphere of truth. To date that has not been the experience in my hometown of Carlsbad. This post is an attempt to provide some background for a reasoned debate.
If done properly "municipal aggregation' has some potential benefits, and might save each household in Carlsbad and its environs a few bucks on the monthly energy bill. Given the well-publicized troubles of SDG&E and other in-state utilities, CCE could become the wave of the future and a defacto monopoly.
The possible benefits to consumers may be real, but a one or two percent savings on our utility bill is light years from what you are reading below and might seem more trouble than its worth. A follow up to this post will deal with the following delusion and will seek to provide more clarity on what Community Choice Energy can and cannot do.
The possible benefits to consumers may be real, but a one or two percent savings on our utility bill is light years from what you are reading below and might seem more trouble than its worth. A follow up to this post will deal with the following delusion and will seek to provide more clarity on what Community Choice Energy can and cannot do.
Under most circumstances, the issues surrounding Community Choice Aggregation (CCA) are straightforward. These are essentially programs that allow local governments to procure power on behalf of their residents, businesses, and municipal accounts from an alternative supplier while still receiving transmission and distribution service from their existing utility.
Investor-owned utilities are easy to hate. That definitely holds true in California. The Tubbs Fire in the Santa Rosa area in October 2017 killed 22 people, while burning 36,000 acres, and destroying 5,600 structures. It was considered the worst fire in state history until 2018 when the Camp Fire broke out in Butte County. It burned 150,000 acres, incinerated 19,000 buildings and took 86 lives.
Both fires were blamed on equipment owned by power utility PG&E, which has announced the intention to reorganize itself under Chapter 11. (It should be noted the CAL FIRE report on the Tubbs disaster indicated that private equipment unowned by the utility was to blame.)
As a response, several communities in our state are now seeking to join the Community Choice Energy Bandwagon. That includes my hometown of Carlsbad. Many do question whether or not the local government belongs in the electricity business. They wonder if it is prudent for a civic government to gamble on risky ventures for which it is ill-prepared and unqualified.
Energy is not akin to the trading of a commodity in the short term market. Most contracts to purchase energy are both non-cancellable and can span decades ahead. This means CCA members are financially liable for significant long-term obligations. That makes CCA's highly vulnerable to changing market conditions. Energy procurement is risky, complex, costly, and long-term. Because withdrawal from CCA membership is cost-prohibitive, a city’s decision to join binds future City Councils – and future generations of taxpayers.
There is a panoply of “Green” energy companies, consultants, activists, and lobbyists preparing to gain politically and financially from the proliferation of CCAs. Public agencies, including those in areas like northern San Diego County, must rely on some of these same sources for advice on CCAs, which is a clear conflict of interest.
In an era where cities and counties struggle to provide essential services, including basic public safety and human services, should the government be seeking to emulate ENRON? Prior to throwing your tax dollars into a CCA money pit, care should be taken to assure that CCE will actually help the environment, rather than just burdening future generations with additional debt. Before committing to Community Choice there are also some concerns that need to be discussed.
1. To attract customers, CCAs have to offer prices competitive with the local utility company. CCAs must not only retain customers to survive. but must continually grow. Costs have to be spread over an increasingly larger number of ratepayers. Because Energy is cheaper when bought in bulk. Investor-owned utilities have the resources to construct new energy sources, such as solar or wind projects that tend to reduce costs in the long-term.
2. Energy is a commodity and all commodities are inherently risky. Energy investments are highly volatile, price-sensitive, and subject to economic and political fluctuations in a global marketplace. With shareholder-owned utility companies, (SDGE as an example) both consumers and stockholders share market risks. With Community Choice Energy, only ratepayers are there to bear the brunt of market changes and poor choices.
3. Few places on earth have as complex a regulatory market like California. Though one may believe the misconception that as a quasi-governmental authority CCE's are somehow exempt from Sacramento's long arm, the California Public Utilities Commission (CPUC) regulates all electric utilities, including CCAs. A single CPUC decision has an enormous impact on energy providers.
California’s energy market and regulatory climate are complex, dynamic, and unpredictable. Regulatory decisions have a huge impact. While lobbying by CCAs can mitigate risk, regulatory outcomes are uncertain.
4. CCA organizers prefer to have many members in order to procure energy at cheaper prices. But large groups bring a variety of viewpoints, competing interests and inevitable conflict.
In CCAs, organizational power is held by the largest agencies because voting is weighted based on the electricity demands for each member jurisdiction. For example, in Sonoma Clean Power, the City of Santa Rosa has 43 voting shares, while the smaller city of Sonoma has 3 voting shares. Smaller cities lack leverage and are less able to influence CCA decisions.
One scenario for Carlsbad that has been floated is a Joint Powers Agreement with the city of San Diego. Cities and counties must realistically evaluate the pros and cons of membership before joining. The smaller the community, the greater the risks of a CCA membership.
5. The usual tension between environmentalists and labor groups pose challenges to elected officials in navigating the CCE political landscape. From San Diego to San Francisco, environmental and labor groups have battled over the adverse impact of CCAs on union jobs at utility companies.
Another documented risk is the use of renewable energy credits (RECs) by CCAs in order to game the system by relabeling fossil-fuel power as “renewable.”
Renewable energy is heavily subsidized by the government. As a result of the state’s extensive energy policies and subsidies, Californians pay some of the highest electricity rates in the nation. Subsidies affect decisions and distort the market by incentivizing some sources at the expense of others. The use of subsidies allows a government to pick marketplace winners and losers.
Though progress has been made, renewable energy sources still cannot survive without a subsidy because they are not cost-effective. Reliance on subsidized renewables creates risk, uncertainty, and makes energy markets vulnerable to losses or even collapse should subsidies end.
One example is the 30% federal investment tax (ITC) credit for rooftop solar. This tax credit will be reduced to 26% in 2020, 22% in 2021, and 10% in 2022. Reduction or elimination of these credits will logically have a negative impact on the solar industry. The reduction or elimination of renewable energy subsidies would also negatively impact Community Choice Aggregates.
Despite decades of energy subsidies, conventional energy sources (sadly) continue to serve as the backbone of the economy. Until renewable sources are providing the same cost-efficient and reliable energy as fossil fuels, renewable energy will simply not survive without taxpayer subsidies.
A core rationale for Community Choice is increasing the use of renewables. Were renewable energy subsidies to be reduced or eliminated, Community Choice Aggregators would be fighting for survival. As a creation of government, energy subsidies are thus subject to shifting political currents. As we have recently seen in national politics, many things hinge on the outcome of a single election. Obviously, that uncertainty could result in taxpayers being at risk.
6. CCE advocates assert (inaccurately) that their programs are not taxpayer-subsidized. Member agencies must front the startup costs and assume responsibility for CCA operations and debt.
Linked here is an analysis prepared for leaders in Contra Costa County. Estimated CCA startup costs range from $1.5 to $3 million, excluding the staffing costs of the participating agencies. Most of these costs are for consultants. Unless some other funding sources are available, participating agencies absorb these costs.
In communities with community choice, public and private organizations are often compelled to purchase electricity from the Community Choice Aggregator. even when the local utility company is cheaper. This cumulative effect increases costs to consumers and taxpayers. Added overhead costs are ultimately passed on in the form of higher prices to consumers or to taxpayers in the form of reduced government service delivery and/or higher taxes.
7. Most CCAs are formed by Joint Powers Agreements among multiple public agencies. Many Joint Powers Agencies (JPAs) may end up having jurisdiction in San Diego County, though no one may ever discern how many. Joint Powers Agencies have no reporting requirements because they are solely accountable to their government agency members.
Most JPAs are non-transparent to their constituencies. Their boards can hold meetings without public participation or press coverage. Public accountability and oversight are not possible for agencies that few people are even aware exists. The human costs of that lack of daylight were seen with LA Works, a Joint Powers Agency formed by the cities of West Covina, Azusa, Glendora and Covina that went under and then stopped paying employee pensions.
8. JPAs are able to enter into contracts and run up debt without any voter assent. Formation of a JPA is often executed to enable public agencies that reach their debt limit to do additional borrowing. On top of almost one trillion in debt created by California's varied layers of government, over the past decade and a half, California JPAs issued over $148 billion in debt.
"We the people" are responsible for servicing this debt, which lacks public oversight. School bonds are mandated by statute to have public oversight committees, while JPAs lack accountability mechanisms. In a 2015 report, the California Task Force on Bond Accountability acknowledged the lack of JPA oversight and accountability.
"We the people" are responsible for servicing this debt, which lacks public oversight. School bonds are mandated by statute to have public oversight committees, while JPAs lack accountability mechanisms. In a 2015 report, the California Task Force on Bond Accountability acknowledged the lack of JPA oversight and accountability.
9. The creation of a Joint Powers Agency (JPA), such as a Community Choice Aggregator is not free. In order to function a Joint Power Agency has to employ staff and pay rent to work from a location, They are empowered to make decisions that taxpayers are on the hook for, without any input. Governing board members are not directly elected by voters, which contributes to a lack of transparency.
10. Investor-owned utility companies like SDG&E have decades of experience in procuring low-cost, reliable electricity. By comparison, those calling the shots for CCAs are relatively inexperienced, which introduces a significantly increased element of risk.
That is why the Association of Bay Area Governments pulled the plug on its Electrical Aggregation Program in 2001. They characterized the short-lived, multi-agency program as a “risky venture” due to the market uncertainty in the fallout from the Enron scandal. There have been some cautionary tales since then.
In 2014 the City of Hercules was forced to sell its Hercules Municipal Utility to PG&E following “a decade-long, multimillion-dollar misadventure.” A toxic mess of overblown growth projections, illusory profits, and heavy debt service contributed to the electricity utility’s demise.
There is also the experience of the Northern California Power Agency to consider. NCPA is a Joint Powers Agency established fifty years ago to sell power from its geothermal and hydroelectric facilities. Among its member agencies is the Port of Oakland, BART, the cities of Alameda, Palo Alto and Santa Clara, and several other agencies in northern California. NCPA’s finances are at the breaking point because of the debt service requirements for over $835 million in long-term debt.
Community Choice is a concept that continues to face many challenges. It remains to be seen whether CCAs are a passing fad or will by default end up taking the place of our unfriendly local utility. To justify their costs and risks to taxpayers, CCAs must serve a long-term, compelling public purpose that only local government can provide. CCAs fail this test.
Many local elected officials serving on CCA governing boards lack the knowledge and expertise necessary for long-term success in the high-risk energy industry. It's akin to hiring a surfer to perform brain surgery.
Many local elected officials serving on CCA governing boards lack the knowledge and expertise necessary for long-term success in the high-risk energy industry. It's akin to hiring a surfer to perform brain surgery.
QUESTIONS TO ASK
A- Does a nominal increase in renewable energy use promised by Community Choice Energy justify the risks?
B- Does the government belong in the electricity business? Or is it reckless for a local government to gamble on risky ventures for which it is ill-prepared and unqualified?
C- “Green” energy companies, consultants, activists, and lobbyists all stand to gain politically and financially from the proliferation of CCAs. If public agencies, including Carlsbad, rely on some of these same sources for advice on CCAs is this not a clear conflict of interest?
D- Should politicians that ran on a CCE friendly platform recuse themselves from voting when they use consultants such as the one seen below as campaign surrogates?
E- Today’s cities and counties struggle to provide essential services, including basic public safety and human services. Will throwing tax dollars into the CCE money pit help the environment, or will it burden future generations with additional unwanted debt?
F- On a more local note: One proposal for a Joint Powers Authority has Carlsbad partnering with Oceanside in a multi-million dollar enterprise affecting us all. Given the unique and contentious dynamic of Oceanside's politics, is that really an arrangement that is good for Carlsbad?
Given the inexperience of Carlsbad's current Council majority, is that really an arrangement that is good for Oceanside? And finally, is an alternative scenario that involves forming a JPA with the City of San Diego going to preserve local control while smaller communities are given far fewer votes?
Given the inexperience of Carlsbad's current Council majority, is that really an arrangement that is good for Oceanside? And finally, is an alternative scenario that involves forming a JPA with the City of San Diego going to preserve local control while smaller communities are given far fewer votes?
Be Scared, Be Very Scared.
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