In their drive to reduce greenhouse gas emissions, a number of communities, including San Diego, are pursuing community choice aggregation, or CCAs – a government-controlled energy program. These entities seem like a viable solution in some instances, but the analysis San Diego is using to potentially move forward with the plan is deeply flawed. With our environment and finances at stake, there is too much uncertainty to move forward with confidence.

CommentaryI want to achieve reasonable climate goals that benefit San Diegans. Our environment has always been vitally important to me, but as an economist, my training has taught me to carefully weigh the costs and benefits of any plan.

The CCA concept is relatively straightforward: A government entity replaces the public utility as the purchaser of power to more actively pursue non-fossil fuel sources of energy at lower costs. It sounds like a great idea, but the devil, as they say, is in the details.

The Fermanian Business & Economic Institute at Point Loma University, for which I serve as chief economist, was commissioned by Sempra Services to conduct an independent analytical review of the study the city commissioned to help determine the feasibility of a government-run energy program in San Diego.

It should be noted that asserting something is “feasible” is a relatively low bar. It says nothing about whether a project is capable of being successful. In over 800 pages, the study fails to credibly show that a CCA is even feasible, and it confirms that there are too many unknowns to make an informed choice on establishing one in San Diego.

Consider this finding from the study: Lengthy consideration is given to the potential impact of building a solar facility in San Diego that the study then says is not feasible due to space requirements. The study shows that such a facility would create just 11 jobs, but one half-time employee would earn $2.3 million.


We Stand Up for You. Will You Stand Up for Us?

It does not take an economist to notice that analysis like this requires additional scrutiny.

Fermanian Business & Economic Institute’s analysis found flaws in all of the study’s conclusions regarding the feasibility of community choice aggregation for San Diego and a notable lack of supporting data.

A CCA could be a tremendous financial drain. The study concludes that it would be financially feasible, but in calculating the financial outcomes of 11 possible outcomes, only two cases show a positive financial outcome. Unfortunately for the city and San Diego taxpayers, the liability could be as high as $2.8 billion, according to the study’s own calculations.

The study relies on unrealistic cost-savings projections. The study brings no credible analysis or data to its conclusion that CCA customers would receive lower rates. It begins with CCA rates being above that of the utility, and ends with them being lower only because of an implausible assumption. Although the CCA and utility would operate in the same energy market, the study assumes that power acquisition costs would be flat for the CCA, but rise by about 3 percent per year for the utility. The study’s authors do not offer their reasoning for why this assumption is made.

The study’s claims of consumer benefits are not supported by data. The CCA would need new financial capital to invest in building renewable energy capacity. But the study indicates the CCA would operate at a loss for several years after starting up. If the city wants to invest in this scenario, it would need to secure new funds by taxing residents or borrowing money, which could negatively impact the city’s credit rating to borrow money for core city services.

The study’s claims that a CCA would reduce greenhouse gas emissions are unfounded. Under its Climate Action Plan, the city’s goal is to receive 100 percent of its energy from renewable sources by 2035. Accomplishing this goal is the most important motivation for a CCA, yet the study’s base case for the government-run program only achieves a 51 percent renewable energy supply by 2035.

Beyond the study’s shortcomings, two critical pieces of information could drastically alter the cost-benefit analysis of implementing a CCA.

Future state legislation could mandate that all utilities, including SDG&E, meet a 100 percent renewable goal. This would enable the city to achieve its renewable energy goals without undertaking the huge financial risks associated with operating what would be the largest CCA in existence.

The California Public Utilities Commission is revising formulas used to make utilities whole – for long-term renewable energy contracts – when residents or businesses leave a utility for a CCA. This is a cost incurred by a CCA. The size of this “exit fee” could significantly magnify the worst-case financial outcome, a $2.8 billion loss, citied in the city-commissioned study. It’s also important to note that the California Public Utilities Commission is not simply resetting or calculating exit fees, something it does annually because market prices change. In addition to resetting exit fees, the commission is revising the methodology used to determine those fees.

Lack of sufficient information often is the root of bad policy. Given the high costs, risks and many unknowns outlined in its own study, the city should take a step back and work to resolve these issues before committing to move forward. There is no rush, and San Diegans will benefit from informed decision-making.

Lynn Reaser is the chief economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University and the chair of the Treasurer’s Council of Economic Advisors, where she advises State Treasurer John Chiang on issues impacting California’s economic climate.

    This article relates to: Opinion, Science/Environment

    Written by Opinion

    Op-eds and Letters to the Editor on the issues that matter in San Diego. Have something to say? Submit a commentary.

    17 comments
    Don Atenow
    Don Atenow

    City of SD managing utilities? What could go wrong?

    Now, back to those port-a-potties and hand washing stations...

    merlot4251
    merlot4251 subscriber

    In certain areas back east, you used to encounter a lot of municipal utilities run by local government entities.  Most have been phased out as they were less efficient and more costly than commercial utilities like SDG&E.  I personally don't have confidence that the San Diego City Council's CCA will be able to provide service levels equivalent to SDG&E.

    Chris Brewster
    Chris Brewster subscribermember

    Ms. Reaser, in publishing this commentary, imperils her own reputation and that of her institute. It is not unusual these days (unfortunately) for private companies to contract with institutions of higher learning to conduct studies that appear elevated in value due to the association with the institution. They may bury study outcomes that don't coincide with their interests and trumpet those that do. Here however, we have a company which has a clear point of view (which not coincidentally aligns with Ms. Reaser’s), but is constrained from taking a public position on this matter under California law. Nevertheless, they appear to have cleverly turned Ms. Reaser into a lobbyist for their goals, while aiming to appear to stay on the sidelines. The city, which has no financial interest either way, funded a study that found that CCA was, on the whole, a good idea. So, Sempra, which has a clear financial interest, funded a study that found that it is a bad idea. No surprise there; but it leaves Ms. Reaser and her institute appearing to be stooges for a corporation, however honestly they may have arrived at their point of view. 

    Tony Manolatos
    Tony Manolatos subscriber

    @Chris Brewster The city's study did not say CCA is a good idea. Also, attacking Dr. Reaser, a leading economist who advises the state treasurer, doesn't change the facts. The facts in this case are clear. There are too many unknowns, including costs, to make an informed choice about government-controlled energy in San Diego. 

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Manolatos: VOSD wrote a story on this subject which I have linked below. It stated, in part, "In the past, SDG&E has outmaneuvered other local governments that have tried to poke holes in its regional monopoly. If that history offers any indication, it’s certain that SDGE’s parent company, San Diego-based Sempra Energy, and its allies will slice and dice the city’s study to halt a takeover bid. Sempra and the San Diego Taxpayers Association – which has on its board representatives of both Sempra and SDG&E – both released nearly identical statements on Wednesday, even before the city study was public." Your public relations firm represents the San Diego Taxpayers Association. Enough said.
    http://www.voiceofsandiego.org/topics/government/study-shows-san-diego-could-provide-cheaper-greener-energy-than-sdge/

    Bill Stoops
    Bill Stoops

    @Chris Brewster Let's cut to the chase:  Why is force used to create the initial customer base for any CCA?  If  CCA is such a good deal, why does the legislation make everyone a customer, unless opting out through independent action?  It stinketh, says I.  I know talking like a pirate day just past, but could not resist the allure of the phrasing.

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Stoops: I was not commenting here to suggest a position on the matter. My initial and subsequent comments are intended to point out that the existing monopoly is a puppeteer in this process, working behind the scenes to influence the debate through people like Ms. Reiser, Mr. Manolatos, and the San Diego Taxpayers Association. That, to me, is what stinketh.

    Don Wood
    Don Wood subscriber

    @Tony Manolatos @Chris Brewster  Mr. Manolatos' PR firm is leading a campaign opposing the city's adoption of a CAA, with partial funding from Sempra Energy. Consider the source. Ditto for Ms. Reaser's commentary. Readers should always ask "who is getting paid for this" whenever we see an opinion piece of an advocacy "study" for or against CAAs. 

    Don Wood
    Don Wood subscriber

    @Bill Stoops @Chris Brewster  The state legislation which allows local governments to form CCAs included language that allows customers to opt out, but not to opt in to a CCA. The original bill was pushed through the legislature during the final days of the session, and did not get much in the way of review and comment, either by other members of the legislators, state energy regulators or the public. At this time, the CPUC and the utilities are preparing to force all residential energy customers onto time of use (TOU) rate, also with very little review and comment by the public. This seems to be the way things get done in this state. 

    craig Nelson
    craig Nelson

    @Don Wood @Tony Manolatos @Chris Brewster And that is different than those proposing their own little monopoly of a CCA? Creating jobs for themselves and Cadillac pensions while the ratepayers absorb the enormous risks? This is a terrible idea except for those that want to run their own little monopoly. 

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Nelson: We are currently all subject to a monopoly presided over by Sempra. By definition, if there are two options, as proposed here, there will be no monopoly. I prefer competition.

    Bill Stoops
    Bill Stoops

    Interesting read on the risk/reward assessment of enlarging government, and exposing taxpayers to greater financial liability than the privately capitalized SDG&E government created service area monopoly.  I remain perplexed and concerned about the state enabling legislation for CCA creation at a more local level, where once the CCA is established by local government, existing SDG&E customers are automatically "opted in" to the CCA.  The customer has to take an affirmative action to "opt out" should they desire to remain an SDG&E customer.  I term this using government force to create the CCA's initial customer base, although the customer can immediately take an affirmative action to "opt out" subsequent to being "opted in".  I conclude there is something not as beneficial as many supporters of CCA's state about a CCA, as any good opportunity will cause customers to seek it out.  No force required.  A CCA requires force, and the proponents know that.  The so-called "technical study" about a CCA done for Solana Beach, way toward the back of the study about page 65 or 68, clearly states that less customers being automatically opted in, a CCA would fail.  Interesting comment on viability and benefits, seems to me.  

    craig Nelson
    craig Nelson

    @Bill Stoops In NoCal they forced Marin ratepayers into the CCA and then CHARGE THEM A FEE to get out! Yep, sounds like a government program if ever I saw one. 

    philip piel
    philip piel subscriber

    I don't see why government run energy is such a bad idea, great strides have been achieved in education, pensions, healthcare and of course services available at your local DMV. When I think government thoughts of quality, responsibility, service and a general sense of well being fill my soul. What could possibly go wrong? 

    philip piel
    philip piel subscriber

    @Jerry Jones @philip piel


    Please keep it on the down low, I figure I have another 6 months before sarcasm not aimed at Trump is equated to hate speech and put on the bus to the Island of Misfits with various statues and other pieces of history deemed not worthy.

    Now back to the conversation about an entity that can't perform any of its tasks in a professional manner being tasked to take on yet another responsibility...