Government Electrical Power: A False Choice

Dan Titus, 3-14-2017

Community Choice Aggregation (CCA) is a policy that enables local governments to aggregate (add up) electricity demand within their jurisdictions in order to procure alternative energy (wind and solar) supplies while maintaining the existing electricity provider for transmission and distribution services.” In short, it adds a middle man to siphon off more of your money.

Power providers like SCE are on track to meet the State’s climate change goals; however, they aren’t moving fast enough for agencies of the State. Cities and counties, want to form their own power companies because they want to move faster on climate change goals. They want to form Joint Power Authorities (JPAs) to compete with SCE. They claim they can offer a better rate for consumers, even though the power they will be offering is skewed heavily toward expensive subsidized “green power”, like wind and solar. This is a false choice for consumers.

Introduction

This is really no “choice” in Community Choice Aggregation (CCA). As in education, the government will have its hand in your pocket. Like Obamacare, ObamaPower – Picks winners and losers in the power game. Subsidized renewables are the winner – what happens to customer rates when subsidies go away?

A new government power entity is being considered for the Inland Empire. A feasibility study was commissioned; however, it couched as a business plan. This tells me that this is an outcome-based document and it is to support the conclusion to proceed with this plan; No vote of the people or rate payers that will be affected by the plan. Yet another unelected, board, body, or commission will rule over people. All in the name of sustainability, which is simply rationing of resources for control.

With an uncertain economy, a strained City budget, and roads still in disrepair now is not the time to embark upon a risky government run enterprise that strays so far from core government services. Furthermore, given the new administration in Washington, global warming and sustainability standards are already changing. Forging ahead with government power in this new environment will be very risky.

Community Choice Aggregation (CCA)

Mayor Carolyn Petty of Hermosa Beach cautioned about CCA at a council meeting on July 26, 2016. The consultant for CCA in that city promoted “carbon-neutral” as the major goal, the reason being that Hermosa Beach should be a “leader” in regards to climate change to reduce GHG emissions to subscribed 2030 levels. Petty opined that carbon-neutral is an impossible goal to meet because there is no way to be 100% carbon-neutral.”

The thrust of the urgency is to do it “now” rather than waiting for the current power provider to reduce emissions as per their timeline by 2030 – They basically were considering committing to the plan, even though it was voluntary. The mantra that faster is better became critical decision criteria in the “process”. She stated that the city of Lancaster, California, who entered into long-term energy contracts, and impossible to get out of, is projecting losses of $6.4 million dollars as of June 2017.

According to Lancaster’s June financial reports, Petty said the CCA was projected to close out the 2016 fiscal year at a $3.6 million dollar loss. When she reached out to them, Petty said Lancaster officials submitted new numbers that showed a $4 million dollar swing in the opposite direction, with nearly half a million in profit.

But the numbers in the report, which was not audited, did not make sense. She said the revenue from clients went up $2.2 million from one report to the next, while the delivery costs went down by $1.7 million. More customers, and more revenue, she argued, should result in higher delivery costs.”

CCA was referenced in Fontana at a round table presentation on August 3rd 2016, at the Center State Theater, where officials from the city of Lancaster were invited to participate in a “Round Table” discussion. These officials held their city out to be a shining example of “Smart Growth” aka. sustainability. One official tied the cities participation of a CCA as part of that mix. Why is the city of Fontana holding out Lancaster as an example?

Wendy Lack, of the Contra Costa Bee, authored a detailed article about CCAs that is very instructive.
She details some of the findings in a subsequent article titled, “Community Choice Electricity in Contra Costa County a Bad Choice”. Cheerily named “Community Choice” electricity programs are new to California. Examples are: Marin Clean Energy (2010), Sonoma Clean Power (2014) and Lancaster Choice Energy (2015) and San Francisco’s Clean Power.

While Community Choice is new, government run electric utilities are not. The Association of Bay Area Governments (ABAG) suspended its Electrical Aggregation Program in 2001, characterizing the short-lived, multi-agency program a “risky venture” due to market and regulatory uncertainty.

How CCA Works

Here’s how [CCA]works. Local government agencies form a new, semi-invisible government agency (JPA) to purchase and sell electricity. The local utility company, such as PG&E, provides transmission, distribution, and customer billing services for a fee paid by the new agency’s customers. All people who live and do business in the area become customers of the new agency unless they ask to “opt out.” The new agency must compete with the local utility company for customers. Government can make everyone their customer for a moment, but then they have to keep them. So what’s their pitch? Is the energy they’re selling greener than, say, PG&E? Is it cheaper? Is it managed by superior experts in the energy industry?

Less than two years ago, the City of Hercules sold its Hercules Municipal Utility following what was dubbed “a decade-long, multimillion-dollar misadventure.” Overstated growth projections, unrealized profits, and heavy debt contributed to the electricity utility’s failure, leading to its sale to PG&E in 2014 amid a firestorm of public outrage.

The Northern California Power Agency (NCPA) is a Joint Powers Agency established in 1968 to sell power from its geothermal and hydroelectric facilities. Its 15 member agencies include the Port of Oakland, BART, the cities of Alameda, Palo Alto and Santa Clara, in addition to agencies in northern California. NCPA’s finances are strained due to heavy debt service requirements for more than $835 million in long-term debt.

At the end of the day, Community Choice Agencies offer nothing to consumers. They simply cannot compete, long-term, with local utility companies. Facts don’t deter special interest groups that worship at the altar of Climate Change, profit from government contracts and urge government expansion with tireless zeal. Good sense demands that public officials resist the temptation to jump on this bandwagon.
Energy is a long-term business. Procurement contracts are non-cancellable and can span 30 years into the future. Cities that join CCAs are on the hook for large, long-term financial obligations. When things turn south (as they surely will), member agencies are stuck because they cannot afford to exit the program.

For example, as of March 31, 2015 Marin Clean Energy had outstanding non-cancelable power purchase commitments of approximately $886.5 million for energy and related services through October 31, 2041. This equates to more than $52 million for each of MCE’s 17 members, which include the Contra Costa cities of El Cerrito, Richmond, and San Pablo.

As of June 30, 2015, Sonoma Clean Power had non-cancelable power purchase related commitments of approximately $505.3 million for energy that has not yet been provided under power purchase agreements that continue to December 31, 2026. This equates to more than $56 million for each of SCP’s 9 member agencies.

Once a county or city government gets into the energy business they can’t get out, short of losing their shirts and abandoning the enterprise altogether, as happened in Hercules. CCAs are destined to become just another government money pit that will increase the burden of government debt our children and grandchildren must pay for such obligations as Contra Costa County’s $1.7 billion in unfunded pension and retiree healthcare promises.

So if CCA is not greener and it’s not cheaper, then perhaps the people running these agencies are more knowledgeable. Maybe they’re more innovative and competent than investor-owned utility companies like PG&E, so they deserve our trust to make our energy future bright.
So what is a CCA exactly?

Essentially it is a government created and controlled middle-man that brokers energy contracts on behalf of consumers. Instead of paying Southern California Edison (SCE) directly residents would pay the Community Choice Aggregator of power (CCA). The CCA would then leverage the buying power gained by pooling consumers to purchase energy contracts. The hope is that the CCA would then use this buying power to purchase energy contracts at an affordable price from sources that provide cleaner energy than SCE would normally offer.

The choice part of a CCA is that instead of just paying the one rate afforded by SCE, consumers could choose from various cleaner options to meet their energy needs. For example, Marin Clean Energy (MCE), a CCA touted as a successful model, offers consumers three choices: Light Green (50% renewable), Deep Green (100% renewable), or Sol Shares (100% through local solar farm). As to be expected, the greener options typically would cost the consumer significantly more. In the MCE plan, the Sol Shares rates are 30% higher than the rates paid by those that choose the Deep Green option.

Claims

Proponents of CCA claim that it will bring cleaner energy to communities at more affordable rates. As a government run not-for-profit, instead of paying dividends to shareholders investor owned utilities (IOU’s), they claim the CCA will be able to reinvest profits into developing local green energy sources that could provide jobs and power to local communities.

Risks – Downsides
One of the downsides is that if the CCA is not successful that taxpayers will likely be caught holding the bag. In San Francisco a CCA was suspended after expending $4.1 million dollars. Another report indicated that in the SF example electricity rates were set to increase by nearly 5 times.

With our current power model, we supposedly have government regulators working on our behalf to ensure entities like SCE are not behaving badly. Whether those regulators are doing a good job is definitely a question up for debate, but with a CCA it is not clear what regulation, if any, they would have. Rates under a CCA would not be regulated by a government agency; instead they would be set by the CCA’s Board of Directors – which typically is comprised of locally elected officials. In addition, how are we to know whether the energy purchased by a CCA is actually cleaner? And who’s to keep the CCA from paying their directors and consultants outlandish salaries and benefits?

Those are exactly the concerns raised by one energy expert with regard to the Marin Clean Energy (MCE) CCA. In startling allegations, energy expert Jim Phelps has claimed that MCE has actually cost consumers more while providing energy that is less clean than PG&E (the local IOU) was providing. According to his analysis, the primary beneficiaries of MCE, which has 22 employees according to the City staff report, appears to be the directors and consultants of the organization that are bilking taxpayers out of millions of dollars a year.

MCE, which consists of the county of Marin, all 11 of Marin’s municipalities and the city of Richmond, serves as the retail electricity provider for 124,000 customers. The county of Napa and the cities of Albany and San Pablo have asked permission to join the authority, which could add another 27,000 customers. And a group of San Francisco supervisors has expressed interested in having the city, with its 475,000 residential and nonresidential electricity accounts, join the Marin agency.

The authority, which competes with the investor-owned Pacific Gas and Electric Co., was founded primarily to reduce greenhouse gas production by boosting the use of renewable energy sources. Fifty percent of the authority’s energy comes from renewable sources, while renewable sources account for 20 percent of PG&E’s energy.

Green Washing

Phelps focused his critique on MCE’s use of renewable energy certificates (RECs). RECs are tradable commodities that certify that 1 megawatt-hour of electricity has been generated from an eligible renewable energy resource.

“These are just like going to the store buying a loaf of bread and getting a receipt,” Phelps said.
He added, “Lots of big companies buy certificates because they feel like it helps the environment. They don’t really know what is going on, that’s just their own visceral sensibility.”

Phelps asserted that clean-energy agencies, such as MCE, purchased RECs to cloak their use of “system power.” He said system power, the mainstay of the electrical grid, consists mainly of energy generated by burning natural gas and coal. That is important because coal and gas produce greenhouse gas emissions, while renewable energy sources don’t.

“What happens is they buy a REC, and it is pasted on the front of this brown power,” Phelps said. “Then they report to you, the consumers, that this is clean energy; but it’s not.” This is known as “green washing”.

Phelps analyzed the MCE’s power mix substituting system power, which has an emission rate of 944 pounds of carbon dioxide per megawatt hour, for all of the authority’s RECs. From that he concluded that MCE is producing more greenhouse gas emissions than PG&E.

Phelps also criticized the authority for waiting more than a year to purchase 10,500 RECs that reduced its greenhouse gas emission rates in 2011.

Phelps said, “What had happened was MCE’s emission rate was higher than PG&E’s so they went in the market afterwards and they bought those 10,500 instruments so they could undercut PG&E” in a contrived green washing scheme.

CCA: A False Choice

With an uncertain economy, a strained City budget, and roads still in disrepair now is not the time to embark upon a risky government run enterprise that strays so far from core government services.

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