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The city government and a Fortune 500 company are on a collision course. The cost, reliability and environmental consequences of everyone’s electricity is on the line.
San Diego has ambitious plans to fight climate change. The plan depends on getting all electricity from renewable resources.
That could set up a showdown between the city and Sempra Energy, the parent company of San Diego Gas & Electric. SDG&E gets most of its electricity by burning natural gas.
Unless the company stops selling gas-fired power within city limits, the city could begin buying power for its 1.4 million residents from someone else. In doing so, the city would become a community choice aggregator, or CCA.
That dumb, confusing name masks a simple concept and a big debate: The city government and a Fortune 500 company are on a collision course. The cost, reliability and environmental consequences of everyone’s electricity is on the line.
Here’s an FAQ to get you caught up.
State and local governments are trying to fight climate change, even if the federal government won’t. Since fossil fuel-fired electricity is a major source of greenhouse gases, these governments all seek to curb the use of coal and gas.
California has several laws aimed at combating climate change. They require power companies to get 50 percent of their power from renewable sources, like wind and solar, by 2030.
San Diego has its own Climate Action Plan. It has made the mayor a star across the country. The plan is far more ambitious than the state’s. The city wants 100 percent of electricity sold within city limits to come from renewable sources by 2035.
Natural gas would still come to homes for heating and cooking.
Of the three major utilities in California, SDG&E is leading the way in complying with state renewable energy goals. Today, 43 percent of SDG&E’s electricity comes from renewable resources and the company has rid its energy portfolio of coal.
But, it’s not planning to abandon natural gas. As the city Climate Action Plan was nearing passage, SDG&E said the plan lacked credibility because the city wanted to get to 100 percent renewable energy and get rid of gas completely. The company argued gas is necessary because wind and solar are not so dependable. You can burn gas to generate power any time of day.
In a statement this week, the company said there are new battery storage technologies that are helping to solve this problem, but it did not comment on whether it believed it could offer 100 percent renewable energy in the future.
If SDG&E isn’t willing or able to meet the city’s goals, city officials have a Plan B written into the Climate Action Plan: They might start buying power themselves, from someone other than SDG&E.
This kind of power buying is known as community choice aggregation, and the city would become a community choice aggregator. Both phrases are abbreviated CCAand are here to stay, but they’re daunting and cumbersome.
What is community choice aggregation? In short, rather than SDG&E finding and buying power, the job would be transferred to San Diego City Hall.
Let’s break this down, word by word.
It sounds like a bunch of people standing around on the sidewalk flying kites hoping for lightning. It’s not. Community means the government. Community choice actually means “government choice.” This means San Diego city staff or a new agency created by the city. Since other cities in San Diego County are also thinking about buying their own power, a number of cities could create a new regional agency to buy power.
Two groups have a choice.
First, the city government has a choice. For the purposes of the Climate Action Plan, the city would choose to buy green energy.
Second, customers have a choice. When the government begins buying power, every SDG&E customer in the city would automatically get sent that power instead of SDG&E’s. But customers could choose to opt out of the government program and continue getting power from SDG&E. Customers would do that if, for instance, SDG&E’s power was cheaper.
This word is almost unnecessary, but here’s why it’s there: Since the power bought by the government would likely come from a variety of sources, the power sources would be pooled together – an aggregation of community-chosen power.
Here’s the hardest thing to understand: SDG&E doesn’t make money selling electricity. It makes its money delivering electricity.
Look at a sample power bill. This becomes clearer: There’s a charge for electricity generation. This is the electricity itself, three-quarters of which SDG&E buys from other companies and resells without a markup.
There are also charges for distribution and transmission. That’s where SDG&E gets its gravy, from guaranteed profits on the sprawling system of lines it’s built over the last century to deliver power to its customers.
If the city starts buying power, SDG&E continues to run the delivery system and continues to profit from delivering power.
“We’re not challenging them, there’s a partnership that would benefit everybody,” said Nicole Capretz, one of the architects of the city’s Climate Action Plan who’s now executive director of the nonprofit Climate Action Campaign.
Every customer would still get bills with SDG&E’s logo atop them. The difference would be the one line on the bill about electricity generation. That rate would be dictated by the city’s power costs rather than by SDG&E’s.
Some customers might have no idea anything changed.
Customers could even opt out of using the city-bought power if, for instance, they didn’t care about the environment. The city expects about 20 percent of customers might opt to continue receiving SDG&E’s power.
Also, as its name indicates, San Diego Gas & Electric is in two separate businesses. Even though the Climate Action Plan mandates the end of gas-fired electricity, that doesn’t affect natural gas used for things like heating homes or powering ovens and water heaters. You can keep your gas oven.
This is a big unknown.
There are a five community choice buyers in the state.
The oldest, formed in 2010, is Marin Clean Energy in the Bay Area. Its customers used to have lower bills than Pacific Gas & Electric’s, now the bills are slightly higher. According to a sample bill on Marin’s website, its power can be $1 more a month. Sonoma Clean Power, another established player in the community choice market, can be $1 cheaper than PG&E, according to a sample bill it posted.
Almost certainly, if the city has its way. The whole point of this is to get greener power.
But power doesn’t have to be cleaner just because the government is buying it.
For example, San Diego County’s government buys power on its own to avoid buying all of its power from SDG&E. The county has saved $13.5 million since 2009 by doing this, according to a county spokesman. But that power is dirtier than SDG&E’s. About 25 percent of the county-bought power is renewable. Compare that with the 43 percent of SDG&E’s power that is now renewable. The county isn’t a CCA, though – the county’s power is just for its own facilities, not others; and its goal is cost-cutting rather than fighting climate change.
Community choice foes have been cheering remarks made during a hearing at the California Public Utilities Commission last month by a consumer advocate.
Matthew Freedman, a staff attorney for The Utility Reform Network, said community choice buyers have too often been holding down costs by selling customers power that is not, in his view, meaningfully helping the environment.
Instead of investing in new wind and solar farms, government buyers have bought power from existing renewable energy projects. Or they have bought renewable energy credits, which means they continue getting electricity that comes from coal or gas but they get to label the electricity as green energy.
This, Freedman argued, just shuffles paper and doesn’t change the fundamental nature of energy production in America.
Freedman said real progress comes from building new renewable energy projects – also known as “steel in the ground.” This is also important for labor unions that lobby for government investment in energy to create new local jobs.
“The test for the kind of commitment the city of San Diego has identified is if they can bring new resources online to meet that goal,” Freedman told me.
The city of San Diego has talked about buying some renewable energy credits to meet 9 percent of its Climate Action Plan goals, but the overall intent of the plan is to develop new projects. For Mayor Kevin Faulconer, the jobs expected to be created by local projects are a key selling point for the plan.
City officials have yet to say for sure if they will start their own power-buying operation. They are still waiting on a technical and economic study of their options. Once that comes out, likely this spring, a City Council vote could happen by the end of the year.
Though it expressed doubts about the city’s gas-free goals, SDG&E says it supports community choice.
“Speaking for SDG&E only, SDG&E supports customer choice,” company spokeswoman Amber Albrecht said in an email. If that all sounds a bit tepid, well, perhaps it is.
Why? Because the company can’t say much else. When Marin Clean Energy was trying to get started, PG&E did everything it could to kill community choice. The company spent millions on a state ballot measure in 2010 that would have made it harder to form a community choice program. During a recent Public Utilities Commission hearing, the head of Marin Clean Energy, Dawn Weisz, recalled that PG&E used customer information to do phone banking and told customers they would lose power if they went with community choice.
After that, the state decided it didn’t want a monopoly, like PG&E or SDG&E, spending ratepayer money to perpetuate its monopoly by attacking community choice.
That applies to SDG&E, but it doesn’t apply to its parent company, Sempra. The parent company can lobby against community choice, as long as that lobbying is somehow independent of SDG&E and is approved by the Public Utilities Commission. If that all sounds a bit ridiculous, well, perhaps it is.
Last month, during a County Board of Supervisors meeting, representatives of Sempra’s Sempra Services division raised doubts about community choice, which the county was thinking about studying further. The supervisors opted not to do the study. Now, the state is investigating Sempra for what its representatives said during the meeting.
That also wasn’t the first time Sempra’s inclinations have been made known.
Three years ago, Sempra lobbied city officials in support of a state bill that would have hurt community choice.
The Climate Action Plan calls for community choice “or another program” to meet the city’s renewable power goal. Nobody is yet sure what that other program might be.
But SDG&E now offers customers a 100 percent renewable energy option called EcoChoice. The amount of power the company has available for that program is tiny, but perhaps SDG&E will figure out how to expand it in a big way.
Or, perhaps SDG&E will step up its game just enough to satisfy the city. In the fine print of the Climate Action Plan, the city admits it may fall short of its 100 percent renewable goal and get to only 91 percent renewable by 2035. The city also expects to review and update the plan in 2020 and each year after. Perhaps the city will learn that it’s too costly to move entirely away from natural gas.
Or perhaps technology will change so rapidly that 100 percent renewable is an easy move.
The company would continue to profit from delivering power, but community choice could hurt SDG&E’s business.
One risk is near-term. SDG&E has already bought power for its customers – including renewable energy. Emily Shults, the company’s chief power buyer, told state regulators last month that more than half of those contracts run for 20 years or longer.
If the city starts buying power and customers stop buying SDG&E’s power, demand for the company’s power will fall dramatically. The company doesn’t want to be left holding the bag for the power it has bought but can no longer sell.
Also, a government power-buying program could offer incentives for things like rooftop solar that do hurt SDG&E’s business.
To a power company, a customer who can rely on rooftop solar is a lost customer. And it could lead the company to do unpopular things like charge other customers more for all the infrastructure that still must be maintained.
If the city started buying power, a rooftop solar customer means the city can just buy less renewable power because some people are generating their own.
If people start adding rooftop solar projects because the government encourages them, there may be less need for an elaborate power-delivery system, the thing SDG&E does make its money from.
The San Diego Taxpayers Association – which has on its board representatives of both Sempra and SDG&E – is concerned that community choice shifts risks away from SDG&E and to the city. (Full disclosure: An SDG&E executive also sits on Voice of San Diego’s board.)
“From a governance standpoint, we want to make sure that we consider the risk exposure to the taxpayer,” Taxpayers Association president, Haney Hong, told the County Board of Supervisors last month.
For instance, what if the city bought too much power? What if the city bought too little? What if the power it bought cost too much?
Around this argument is an air of concern that the city might not know what it is doing. Of course, it would hire people to do this, but would they be as good at buying power as the power company is?
San Diego would be new to the power game, but it already operates a public water system. And our neighbors have publicly run utilities. The Imperial Irrigation District is a public agency that provides water and power to Imperial County, as well as power to parts of eastern San Diego County. The Los Angeles Department of Water and Power is also public. They not only buy power, they also deliver it.
This all echoes debates that have gone on for decades.
A century ago, one of Los Angeles’ city fathers, William Mulholland, waded into a fight over whether private interests or the public should control water and power from projects that eventually made Southern California livable for millions of people. When he started at the city, water was controlled by private interests; when he left, water and newly available hydroelectricity – the renewable energy of its time – were both in the hands of the public.