Government-Controlled Energy Isn't Delivering
By Haney Hong, Ruben Barrales, and Jack Monger
Published April 3, 2018 in The Voice of San Diego
Not enough attention has been focused on the risks of government-controlled energy, and last week’s story in Voice of San Diego is the latest example of coverage that misses an opportunity to highlight the pitfalls cities like San Diego would face if they decide to enter the volatile energy business.
We helped form the Clear the Air Coalition to ensure important questions are answered before San Diego makes critical decisions about our energy and climate future. All of us want cleaner air, but the truth is government-controlled energy programs like the one San Diego is considering are not delivering on their promises to create more jobs and provide cheaper and greener electricity. They do, however, carry a tremendous amount of risk for taxpayers — and could trigger California’s next energy crisis.
Government-controlled energy is a complex topic, but it’s an important one that demands more attention from all of us because the stakes are so high.
Government-controlled energy programs are often referred to as community choice aggregation or CCAs. Such programs are legal in seven states, but their activity has been relatively limited outside of California and Illinois. They allow municipalities to purchase and generate energy as an alternative to utility companies.
In Illinois, government-controlled energy mostly flopped. Chicago, for example, closed its CCA in less than three years. The city was forced to return all its customers to the utility when it realized it could not actually provide them with electricity that was less expensive than energy from the utility.
In California, some cities are forming government-controlled energy programs to help them meet their own climate action plans. San Diego’s climate plan, for example, sets a 100 percent renewable goal for 2035, meaning in less than two decades all the electricity used in the city will need to be from renewable sources. The trouble is, existing CCAs fall well short of meeting this goal.
Only a handful of customers served by CCAs in California choose to pay more and select the 100 percent option. Most select options that provide far less green energy because they cost less. Marin Clean Energy — California’s first CCA — offers customers a 100 percent renewable option, but it accounted for less than 3 percent of Marin’s 2016 sales.
If none of this sounds familiar, it’s our fault for not doing more to spread the word, but here are the facts about government-controlled energy:
• Some utility customers are being forced to pay higher bills to subsidize government-controlled energy providers.
• CCAs are doing next to nothing to improve our environment.
• Renewable energy production in California has grinded to a halt largely because of the advancement of CCAs.
• CCAs use tax dollars to compete with regulated utility companies but they do not want to be regulated by the state; it was a lack of oversight and poor deregulation that triggered California’s energy crisis 18 years ago.
• We’re seeing out-of-state gas and oil companies helping to finance CCA efforts to gain a foothold in California.
• The government-controlled energy program San Diego is considering could require annual revenues of more than $900 million to operate — nearly the size of the entire city budget — and could leave taxpayers with a $2.8 billion liability.
The only way for energy providers to meaningfully reduce greenhouse gas emissions is to build more wind and solar farms and other renewable sources that reduce the amount of energy we use from fossil fuel plants, but government-controlled energy providers are not meeting this goal. This is a point Voice did an excellent job covering this week, and one our coalition has made for months.
In no single year has Marin, the poster child for CCAs, had more than 10 percent of its power generated from new clean energy it developed.
Utility companies buy nearly all their renewable energy under long-term contracts that lead to new renewable generation development, but their renewable procurement has all but stopped because of the uncertainty surrounding government-controlled energy.
“The pipeline is going to run dry. It already is running dry,” said Matthew Freedman, an attorney and San Francisco-based consumer advocate, when testifying before the California Public Utilities Commission last year. He warned that if CCAs “rely too heavily on existing resources then we end up back where we started from, which is a supply crunch down the line with higher prices.”
Voice’s story last week looked at a new city-financed study of two potential paths San Diego could take to try and meet its climate goals. While the story raises good points, it fails to shine a light on the important points an outside consulting firm made in its review of another consulting firm’s study analyzing a potential CCA for the city.
This raises a larger issue: If the city had the expertise required to operate a billion-dollar energy program it would not be forced to do what it just did — hire a consultant to review another consultant’s study.
Speaking of peer reviews, a leading local economist reviewed the city-funded feasibility study in September and found it was flawed, lacked critical information and reached conclusions not supported by facts. The most recent city-funded study supports many of the points Dr. Lynn Reaser made.
In fact, the new study undermines the entire basis for the initial study’s finding that CCA is financially feasible. That’s because the new analysis agrees there is no basis for assuming SDG&E’s rates will escalate over time while CCA rates remain flat. Reaser made the same point in her review.
“The assumption that two competing utility entities would face different pricing in the same energy commodity market is without merit,” Reaser wrote.
Our coalition needs to do more to get the word out, and it will. The local media also needs to do a better job of covering both sides of this issue, and we think it will, especially as this debate enters the public arena.