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San Diego Mayor Kevin Faulconer wants the city to begin buying and selling electricity for city residents. But creating a government-run power agency won’t be easy or without some risk.
San Diego Mayor Kevin Faulconer wants the city to begin buying and selling electricity for city residents.
His goal is for the city to provide cleaner and cheaper power than San Diego Gas & Electric. Not only that, but he wants the city to team up with other cities across the county to create what will essentially be a buyer’s club for clean energy.
The decision also positions Faulconer, a Republican, as a major player in the global battle against climate change.
But creating a government-run power agency won’t be easy or without some risk.
Yes. The city is planning to form a “community choice aggregator,” also known as a CCA or CCE for “community choice energy.”
Customers will automatically be enrolled in the city’s CCA when it’s launched, probably in 2021. But customers will have a chance to opt out and stick with SDG&E, if they want. They will also have the option of going back and forth.
About a fifth of the power sold in SDG&E’s service territory – which is basically all of San Diego County and a slice of Orange County – is already sold by someone other than SDG&E. That’s because commercial and industrial customers have had a kind of choice for years, known as “direct access.”
First, it’s still not sure thing that the city will form a CCA, though the political winds are certainly blowing that way.
The San Diego City Council, for instance, still needs to vote to approve the plan, though its current members have been ready to do that for nearly a year.
A vote will likely happen in December.
Here’s what’s next after that:
In 2019, the city would start meeting with other cities and public agencies that might want to join the city’s energy buyer’s club. Then it would approve a budget and hire people.
In 2020, the city would continue to hire people and begin figuring out what kind of energy it wants to buy, where and from whom and also try to make sure customers understand what exactly is going on.
Finally, in 2021, the city would begin providing power to customers.
No, but the company will have to change.
Here’s the hardest thing to understand: SDG&E doesn’t make money selling electricity. It makes its money delivering electricity.
If the city starts buying power, SDG&E will continue to run the delivery system and continue to profit from delivering power, though it will no longer choose where that power comes from and what kind of power it is. Some city customers may also want to stick with SDG&E and, of course, the company has customers outside of city limits.
The company’s logo will still appear on bills.
According to the city, it should be a bit cheaper than SDG&E’s power.
The city’s consultants ran a variety of scenarios comparing what the city thinks it can sell power for and what SDG&E’s rates might be from 2020 through 2035.
One of the ways the city provides cheaper power is by taking advantage of lower renewable energy prices right now. SDG&E signed long-term contracts for green power when renewable energy was more expensive.
The only scenario under which the city thinks it’ll sell power that is more expensive than SDG&E’s is if the price of renewable energy skyrockets.
Likely so, but not at first.
Right now, all new CCAs begin buying power from existing projects, like solar farms that generate more power than they can sell. So, at first, the city will go onto the market and simply buy up power that is already out there.
At times, this can create a perverse incentive that does nothing to reduce greenhouse gas emissions. For instance, two of the state’s oldest CCAs bought about 12 percent of their power from a local utility’s hydropower facilities in the Pacific Northwest. The local utility seems to have sold off hydropower it needed for its own customers and replaced it with dirtier power.
The city’s CCA business plan says it does not want to participate in that kind of scheme, known as resource shuffling.
It says that “genuine” greenhouse gas reductions cannot occur if the city “simply relies upon renewable generators that are in place at the time the CCA is formed.”
There’s also a political reality here: Electrical workers are unionized. Guess what they want from a CCA? Local jobs. So, the city is talking about building any new projects locally and with union laborers. That means projects that can be built in the city or nearby will be given the highest priority.
SDG&E has taken a somewhat different approach by building a giant transmission line into the desert, which brings in power from outside of the county, including wind power that an SDG&E-affiliated company generates in Mexico.
In the city’s business plan released on Thursday, city officials wrote that projects in Mexico “while feasible and not off the table, would not be considered ‘local’” but they could be “used as necessary.”
Maybe not – that’s one of the most interesting parts of Faulconer’s plan. Other cities across the county may be able to piggyback off the city’s ambitious climate goals.
San Diego officials believe other cities will want to join them and mention Chula Vista, La Mesa, Del Mar, Encinitas, Carlsbad and Oceanside, along with a few free-standing agencies that use lots of power, like the Port of San Diego, the San Diego County Water Authority and the airport.
City officials want this to happen because they believe ratepayers would benefit and a bigger agency would be able to attract better staff.
Mayor Kevin Faulconer’s office, though, takes exception with people talking about San Diego as if its past was the present when they suggest government shouldn’t be in the power-buying business.
“This is not your father’s city government,” the mayor’s spokesman, Craig Gustafson, said in an email last year. “The city of San Diego has turned its once-troubled finances around and is now setting records for road repair, investing nearly half a billion annually in neighborhood infrastructure projects and leading the way for the rest of country with smart-city technologies and a landmark Climate Action Plan.”
That was before it was revealed that the city sent out at least 2,750 incorrect water bills last year.
The city expects it will need over $105 million to get the CCA up and running.
The most logical place to get that money is directly from the city’s coffers or by using the city’s borrowing power. That money could come from the city’s general fund or by going into debt with city assets as collateral.
There might be a few ways to avoid putting the city on the hook. A Silicon Valley CCA got money and was able to get a line of credit without collateral, or the city could rely on a private company to finance the startup costs if that company got to profit from the power sales, essentially making that company a middleman.
The city expects that money generated by selling power would be able to pay off those costs within a few years, at most. Almost all of the startup costs, $100 million, is “working capital,” which is the cash an entity needs on hand to make sure it can handle day-to-day operations for a certain period.
The ongoing administrative costs of the CCA would be about $16 million a year.
The cost of buying power each year ranges from about $390 million to about $650 million a year, though of course customers who use that power pay those costs.
If the city teamed up with other cities and public agencies, they would form a new agency with a collection of representatives who make decisions. Right now, the city is part of similar agencies, like the County Water Authority, which is responsible for providing drinking water, and the Metro Wastewater Joint Powers Authority, which is responsible for getting rid of sewage.
Only one San Diego city has formed its own CCA so far, that’s Solana Beach. There, the city is technically in charge, but a private entity that the city contracted with to buy power on its behalf is making many of the day-to-day decisions. San Diego’s CCA, because of its size, will likely have its own staff, though.
Disclosure: Mitch Mitchell, SDG&E’s vice president for government affairs, sits on Voice of San Diego’s board of directors.