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How San Diego’s New Government-Run Energy Agency Would Work

If the city goes through with creating a CCA, the new agency would be overseen by a board, likely made up of elected officials and then run by staff. That staff would lean on outside consultants.

Community choice aggregation supporters

Community choice aggregation supporters rally in downtown San Diego. / Photo by Adriana Heldiz

Since Solana Beach launched its own power-buying agency to compete with San Diego Gas & Electric in June, the city’s 7,000 electricity customers have already saved about $200,000.

But the city is also already looking ahead to a rough patch where it expects the new agency to lose money until 2022. The amount is relatively small – about $350,000 over three years – but an early sign of how hard it is to predict what will happen in the energy business.

The Solana Energy Alliance is one of about 19 government-run “community choice” agencies in California and the first in San Diego. Local officials created these agencies, known as CCAs, to give themselves more control over energy decisions, largely as a way to fight climate change.

When Solana Beach’s City Council went over the agency’s first quarter of financial returns last week, it had on hand advisers from four different consultant firms – The Bayshore Consulting Group, The Energy Authority, Calpine Energy Solutions and the Tosdal Law Firm.

Advisers like these are set to play a larger role in local energy policy as the city of San Diego and several other nearby cities think about forming their own CCAs. Most California cities – with the notable exception of Los Angeles and Sacramento – are new to the energy market.

San Diego’s agency, if approved by the City Council, will operate at a far larger scale than Solana Beach’s – it will buy power for hundreds of thousands of customers, instead of a handful of thousands. But like Solana Beach, San Diego will have to bring in new people to help. That will be a mix of bureaucrats and outside advisers.

California energy policymakers are, on the one hand, among the best in the world – the state’s mix of green energy is astounding compared with most of the country, a feat that was accomplished with the help of graduates of the state’s public universities. They are also, of course, fallible, as the 2000-2001 energy crisis showed.

The city already has a few people on its staff who understand the energy world, including a chief sustainability officer, Cody Hooven, who is overseeing most of the CCA work, and a deputy city attorney, Fritz Ortlieb, who has been looking out for the city’s interests before the California Public Utilities Commission.

The city also relied on outside energy consultants as officials decided whether it made sense to enter the energy market. These consultants’ math convinced Mayor Kevin Faulconer – a Republican naturally inclined to support a private utility like SDG&E rather than a government-run agency – that a CCA made better business sense.

The city started last summer with a study that showed a government agency was doable – not only could the city buy greener power than SDG&E is providing but the city’s power would be cheaper. Willdan Financial Services did that study, which was reviewed by another consultant, MRW & Associates.

In March, MRW also tore apart SDG&E’s counteroffer, which was supposed to show the city a way to provide greener energy without forming its own agency.

Then MRW did a full-on business plan, which city officials will use as their template for creating a new agency. Two other consultants, PFM Financial Advisors and EES Consulting, reviewed MRW’s plan.

Once formed, San Diego’s new agency would likely be run in conjunction with a few other nearby cities that also want to have control over their energy decisions. Even though other cities are involved, San Diego will be the 800-pound gorilla, as it is in several other local agencies where the city and its suburbs try to make decisions together.

Already, local water utilities, which are government-run, have formed the San Diego County Water Authority, which buys water from outside of the county. There, the city controls about 40 percent of the board votes.

A CCA will be overseen by a board, likely made up of elected officials, and then run by staff. That staff will continue to lean on outside consultants, like Solana Beach uses.

The key players there are The Energy Authority, a Florida-based consultant that buys power on Solana Beach’s behalf. While public officials chart the course that the consultant takes, its staff are ultimately the people in the market making trades. The Solana Energy Alliance gets 27 percent of its power from wind farms, 21 percent of its power from geothermal facilities, 27 percent of its power from hydroelectric facilities and another 24 percent from unspecified purchases of power available on the grid at a given time.

The other major player is Calpine Energy Solutions, a subsidiary of the natural gas and geothermal giant Calpine. The company provides Solana Beach with data management, billing help and a call center for customer service.

Solana Energy Alliance is designed to be legally separate from the city, so city funds aren’t supposed to be at risk as the agency realizes it’s going to earn less than it planned. But City Manager Greg Wade suggested last month that the agency could delay repaying money it borrowed from the city’s general fund.

Even though the alliance is a nonprofit, it expected to “make money” by selling power for more than it costs to buy it. That money pays consultants and overhead. But now the amount it expects to get is far lower than initially planned. In April, it expected to make $3.9 million over the next five years. Now, it expects to make $1 million. This assumes that Solana Beach will continue to sell power for 3 percent less than SDG&E does. Wade also recently suggested that the city could raise prices slightly, though rates would still be set below SDG&E’s.

Officials blamed these revisions, in part, on higher-than-expected energy prices over the summer and higher-than-expected “exit fees” that customers pay to leave SDG&E.

The California Public Utilities Commission recently raised those exit fees, a decision that pleased SDG&E and the state’s two other major utilities. Solana Beach and the community choice trade group CalCCA  were not so happy and recently appealed the decision. An appeal is something the CCAs have to do before they can sue the Public Utilities Commission in court.

The city of San Diego said it already factored those higher fees into its plans.

A formal plan for creating a San Diego CCA is expected to be sent by the mayor to the City Council in January.

In the meantime, SDG&E is so confident that CCAs are taking off that the company is asking to exit the power-buying business so that it can focus on infrastructure projects.

Disclosure: Mitch Mitchell, SDG&E’s vice president for government affairs, sits on Voice of San Diego’s board of directors.

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