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The Fermanian Business and Economic Institute’s review of a city-commission study on community choice aggregation contains some red flags that indicate the institute wasn’t qualified to take on the project.
When you want a second medical opinion, you consult a doctor in the same field. Would you ask an eye doctor to confirm a diagnosis of a heart problem? For a peer review to be valid, the first opinion must be reviewed by someone with credentials in the same specialty.
This is not what Sempra Services did when it hired the Fermanian Business and Economic Institute to review a city-commissioned’s community choice aggregation study. The institute’s review raised several concerns about the feasibility of switching to a government-run energy program. But are those concerns valid? Is the Fermanian Business and Economic Institute a qualified peer in the electric utility world?
The city-commissioned CCA study’s authors concluded that a government-run program for San Diego is feasible. It’s the first point the institute attacks, saying, “It is first important to understand the meaning of ‘feasibility,’” going on to call it a weak endorsement.
Yet in the engineering study world, pronouncing something “feasible” is actually a strong endorsement, and a very good indication that something will indeed work well.
That the institute misunderstood the word’s connotation is a clear indication it is not a peer in this industry. The city’s CCA program is aimed at combating climate change, a global existential threat. That the institute didn’t bother to spend 15 minutes reviewing the word’s usage in similar studies is unconscionable and casts great doubt on the Sempra Services-funded review’s credibility.
Other aspects of the review similarly suggest misunderstandings. At the heart of the study is the use of a standardized mathematical model – the pro forma. It is used to evaluate financial investments and produces two kinds of results: scenarios, which are designed to reflect a potential reality, and sensitivity analyses, which are used to evaluate input variables and do not represent reality.
Those experienced in the use of the pro-forma can see that the institute’s team doesn’t grasp the difference between the two. This lack of understanding caused the reviewers to latch onto a sensitivity analysis result as if it represented a reasonable reality, which it does not. This resulted in a gross misrepresentation and another unforgivable error.
To be sure, the study’s author, Lynn Reaser, is a noted and respected economist, and the Fermanian Business and Economic Institute is a respected institution of higher learning. Sempra Services exploited that credibility when it hired them to perform the study, knowing the institute is not a qualified peer in this industry. The company should have engaged a qualified industry consultant to review the city of San Diego’s CCA study, but instead it chose someone who would have to rely on Sempra’s expertise to evaluate the city study.
And Sempra clearly failed to provide that expertise in the service of a true and legitimate analysis, knowing it could tout the error-ridden findings to prey upon the public’s lack of understanding of the industry. Its entire agenda was to confuse and sow doubt, in the hopes it can maintain its monopoly and avoid having to compete with a CCA program.
So how do you ethically go about reviewing a CCA study? Just as the city is proceeding: Have a qualified peer perform the review. This expert review will be worth reading, and its findings worth taking to heart as San Diego determines its path forward to 100 percent renewable energy.
Mark Hughes lives in University City, is retired, and has nearly 40 years in the power generation industry. Hughes’ commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.