Sonoma Clean Power, utilities face battle over energy costs

The North Bay pioneered a new type of public energy program in California seven years ago that now appears poised to change who buys electricity for homes and businesses across large swaths of the state.

The programs, of which Sonoma Clean Power was an early leader, have expanded dramatically over the past several years.

Their growth is leading experts to examine how well the programs are boosting the use of renewable electricity compared to the private utilities that formerly served the same communities.

The growth is also prompting a face-off between the public programs and California's three biggest private utilities, including Pacific Gas & Electric. In the dispute, both sides have suggested their ratepayers are getting a bum deal in how the state has set the rules for this new era. For the public programs, the outcome has high-stakes implications because their customers could end up paying considerably more to offset the growing costs for excess power that the utilities contracted for but no longer need.

The public programs, typically known as Community Choice Aggregation, or CCA, agencies, have grown to control about 5 percent of the state's electricity market, a new study reports. But both utilities and other experts say that number will increase markedly as other communities join the trend.

“I think everyone who's watching this thinks that there is going to be very rapid growth in the coming years,” said Matthew Freedman, an attorney in San Francisco with the Utility Reform Network, a ratepayer advocacy group known as TURN. Some utilities, he said, have predicted that half their customers could switch to the public programs within a decade.

Even so, experts say the jury remains out on exactly how beneficial the public programs will prove in accelerating a drop in the state's greenhouse gas emissions. Some, including Freedman, suggested that in recent years a significant amount of renewable power has simply been shifted to the public programs from other electric utilities, which then make up any shortfall with fossil fuels, changing little.

“There is definitely some of that that has gone on,” said Severin Borenstein, a UC Berkeley business professor and energy researcher. “The question is how much.”

However, Geof Syphers, CEO for Sonoma Clean Power, maintained the public programs will prove a valuable tool in fighting climate change and in helping communities achieve local environmental and economic goals. Already the fledgling sector is gearing up to finance $2 billion in new renewable electricity production, he said, and a CCA program about 45 miles north of Los Angeles in the city of Lancaster has helped attract an electric bus and battery manufacturer to the community.

“We'll usually be cheaper,” Syphers said of his program's rates when compared to utilities. “We will always be cleaner and we will always be more responsive to local needs.”

His agency's board this summer is slated to consider once more offering incentives to customers who buy electric cars. A similar program last fall offered $2,500 per car - or $5,000 for low-income residents - and resulted in the sale of 206 vehicles.

Beginning of clean power

Sonoma Clean Power launched in May 2014 and reports saving customers $70 million in energy costs over the past three years. The program provides electricity to 196,000 homes and businesses, or about 88 percent of those formerly served by PG&E.

As with other such programs, customers are automatically enrolled and must take action to switch back to the private utility. The utilities continue to distribute the power to all customers. Sonoma Clean Power customers still get billed from PG&E, with various added fees tacked on to the rates for the CCA program's power.

The local program is overseen by a board of 11 elected city officials and county supervisors from both Sonoma and Mendocino County, where next month Sonoma Clean Power electricity will be offered to 38,000 more customers. Residents of Healdsburg and Ukiah have their own municipal power systems and are exempted from the CCA program's service area.

Sonoma Clean Power was the second CCA program to operate in the state. The first also was from the North Bay, Marin Clean Energy, now known simply as MCE. It began in Marin County in 2010 and since has expanded to serve 250,000 customers there and in parts of Napa, Solano and Contra Costa counties.

California currently has eight such public programs in operation, according to a study released this month by UCLA's Luskin School of Public Affairs. A ninth in Los Angeles County recently won approval from the Board of Supervisors there, with programs in Alameda and Yolo counties also expected to launch this year.

Officials for various cities and counties are thinking about starting another 22 programs, the study reported.

The CCA programs are allowed by a 2002 state law, which experts said followed California's first deregulation effort a quarter century ago, a time when the state's electric rates were 50 percent higher than the rest of the U.S.

However, by the early 2000s the new system had produced a wrenching mix of soaring rates, brownouts and financial upheaval among the utilities.

“This all comes out of the California energy crisis,” said Borenstein. The era is often remembered for market manipulation and companies like Enron, a once high-flying energy supplier that crashed amid corruption charges and criminal indictments.

Instead of again using private companies to inject competition into the system, the state's current attempt allows public power agencies to offer Californians a choice.

Similar programs occur in six other states, according to the UCLA study. Some, including in Illinois, were set up primarily to lower ratepayers bills, said Borenstein.

Some leaders pushing the state's CCA programs also have touted rate savings, but that benefit likely will remain limited since electricity remains a widely traded commodity, said Michael Campbell, a program manager with the Office of Ratepayer Advocates, an independent advocacy group with the Public Utilities Commission.

Instead, for the efforts in California, “It's really people interested in doing something about climate,” Campbell said.

Another unspoken offer to ratepayers seems to involve “striking a blow against big, evil corporate giants,” said Freedman of TURN.

“I think it's also been driven by, ‘We hate the utilities,'” he said.

Impact of going green

Ask three experts and you'll get three different ideas on how to evaluate the impact of the public programs on reducing greenhouse gases.

In the UCLA study, the authors report that “Sonoma Clean Power emits 61 percent less (greenhouse gas emissions) than PG&E.” Its authors calculated that the total reduction for all the state's CCA programs in the past 12 months equals more than $7.5 million based on 2016 prices in the state's carbon market.

“Sonoma is a great example,” Julien Gattaciecca, the study's lead author, said of the local program. They're among the best in class.”

However, Freedman and Borenstein said the question they want answered is how much new renewable energy the public programs are helping create.

Both pointed to the potential for electricity generated from natural gas or even coal to simply be shifted around to other localities in the western U.S., even as the public programs can buy renewable power cheaply today on the spot market.

Freedman noted that some public programs have used a strategy of buying inexpensive certificates known as “renewable energy credits” and linking them with electricity from fossil fuels to essentially declare, “Voila, I have green power.”

He also pointed to Sonoma Clean Power's reliance on existing hydroelectric power. According to the UCLA study, hydro amounts to 44 percent of Sonoma's portfolio, with another 36 percent from solar, wind and other “renewables.”

That hydro power, mostly from the Pacific Northwest, would be generated anyway, Freedman said, and bringing it down to California doesn't result in new sources of renewable power or in a reduction of greenhouse gases.

“The CCAs need to be much better” at creating more renewable power, Freedman said, especially now when they can take advantage of historically low financing costs and federal tax incentives that are expected to diminish over time.

Syphers responded that Freedman's focus primarily on building is wrongheaded and the bigger question is whether the programs are reducing greenhouse gas emissions. One way for that to occur is for residential and commercial energy suppliers to rely less on fossil fuels and to report the makeup of their power portfolio to their ratepayers.

“You have to take credit for what you buy,” he said.

Paying for excess energy

If the debate about cleaner energy seems academic, the struggle between the public programs and the utilities looks grounded in dollars and cents. It revolves around the fact that the shift of so many ratepayers to the CCA programs means the utilities increasingly have more power than they need.

The utilities purchased that energy in longterm contracts with state regulators' approval as part of a strategy to make sure California never again winds up short of power. But with the coming of the public programs, the excess is getting too big, and the state must decide who pays for it.

By law, the California Public Utilities Commission is ordered to ensure that both the utility ratepayers and those of the CCA programs pay their fair share of the surplus power costs. Failure to do so can result in either utility ratepayers subsidizing the CCA programs or in unfair charges that makes the public programs' rates considerably more expensive than those offered by the utilities.

One of the few things that both sides agree on is that the state's current approach to dividing up those costs isn't working.

Finding a solution

Last month PG&E, Southern California Edison and San Diego Gas and Electric jointly proposed a new method. PG&E said in an announcement that the public program ratepayers were picking up only about 65 percent of their share of the costs, which meant its own ratepayers this year will subsidize the CCA agencies to the tune of $180 million.

The utility also estimated that the public programs will grow to serve 13 percent of the electricity consumed in its service area this year. That figure would increase to 38 percent by 2020.

The current approach has caused “a distortion” in the market and the utilities want to work with the public programs to find a better method “before it becomes an even bigger problem,” said Deborah Affonsa, PG&E's vice president of customer service. Such efforts often take about two years of review and hearings before the commission, she said.

Another PG&E spokesman said the value of its excess contracts has dropped because of declining prices in today's energy markets.

Sonoma Clean Power officials expressed skepticism that PG&E customers are subsidizing their program's ratepayers. Also, they said the utilities haven't revealed enough about their energy contracts and operations to be able to judge the financial implications of their joint proposal.

“Trying to tease out whether their numbers are fair or not is impossible,” said Erica Torgerson, Sonoma's director of customer service.

Syphers said the public programs soon will offer their own proposal on the issue and “a major feature of it will be that we think we can lower everyone's costs.”

Dawn Weisz, the CEO of MCE, formerly Marin Clean Energy, said finding a solution will involve the utilities selling off power contracts they no longer need and “maximizing the value of those contracts.”

How that happens will affect the bills of both utility ratepayers and those in the public programs, she said. If the utilities fail to wisely manage and dispose of those power contracts, “that's not good for any customer.”

You can reach Staff Writer Robert Digitale at 707-521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit.