The formation of a Long Beach community choice aggregation (CCA) program, which would include the formation of a locally owned electric utility, is on the table once again. If the city council heeds the advice it received from several department heads, including Director of Financial Management John Gross and Energy Resources Director Bob Dowell, that’s exactly where the issue will remain: tabled.
In December, a feasibility study on the formation of a Long Beach CCA was submitted to the city council. The results of the study were accompanied by a recommendation from Gross, Dowell and Long Beach Water General Manager Chris Garner, to defer any decision on whether to form a local electric utility or not by two years, unless new information becomes available that would tip the scale in either direction. The council, in an 8-0 vote, decided to delay any conversation on the item until later this spring to give councilmembers additional time to review the results of the study.
CCAs – also referred to as community choice energy (CCE) – are locally owned electric utilities that utilize the distribution networks of investor-owned utilities (IOUs), such as Southern California Edison, but enter their own contracts with power producers. The first CCAs were formed in Northern California at the beginning of the last decade, promising a higher percentage of renewable energy than their investor-owned competitors and an alternative to the local IOU, Pacific Gas & Electric (PG&E), which had been losing trust amongst consumers in the region.
“There’s been a long, long history, up north, of displeasure with PG&E,” Garner explained. Southern California Edison, the IOU serving residents of Long Beach and beyond, doesn’t have the same troubled history with its clients, he argued, which is one of the reasons Garner and his colleagues question whether there is broad community support for the formation of a local CCA. “I don’t get a real sense that it’s the community as a whole that’s driving this,” Garner said. “And that worries me.”
Local energy consultant Clay Sandidge is part of a working group advocating for the formation of a Long Beach CCA. “I don’t think anybody cares more about Long Beach energy resiliency, air quality and such than Long Beach residents. Long Beach should control Long Beach’s energy future,” he told the Business Journal.
With the implementation of Assembly Bill 117 in 2002, cities and counties have had the right to form CCA programs on behalf of their residents. The first CCA was formed in 2010 and since then has expanded to 19 programs across the state. Even in the early stages of adoption, these locally controlled utilities were able to offer plans that procured a higher percentage of power from renewable sources, often at prices lower or equal to the plans provided by investor-owned utilities.
While Sandidge supports the council’s decision to delay its discussion on the issue until councilmembers review the 115-page report, he also said a complete hiatus on the issue would be a setback. “For the city to sit on this and not do anything for a couple of years would be a disservice to the residents and the business community of Long Beach.”
Dowell, Garner and Gross argued that a two-year wait period on any decision related to the formation of a CCA would allow elected officials and their constituents to carefully weigh their options before making a decision with significant financial implications.
“This would be a large transaction,” Gross explained, noting that a CCA would require an annual cash flow of approximately $140 million. The ratio between risk and reward needs to be considered, Gross noted, especially given that CCAs are still a relatively new concept. “Are the savings really there? Are there really going to be greenhouse gas emission reductions? And what are the financial risks; what happens if people opt out?” Gross asked. “It hasn’t been well established what happens if things go south.”
The concern, Gross and his colleagues noted, is that customers could be held accountable for millions of dollars in pre-procured power agreements if the CCA failed or large swaths of businesses and residents decided to opt out. “It would be a political nightmare if that happened,” Garner noted.
Additionally, consumers are often unaware of the volatility of the energy market, Dowell pointed out. “There’s a reason that investor-owned utilities are owned by investors: they’re willing to put their own money into it for the risk that’s in that market and they know that if the utility does well, they benefit from that,” he explained. “When you’re a CCA and you’re buying a commodity, your investors unfortunately are your residents. And unbeknownst to them, they’re taking on a piece of the risk in the energy market.” While IOUs have to present their rates to the California Public Utilities Commission for approval, CCAs can set their own rates based on their financial needs.
Proponents of CCAs point to the existing 19 programs across the state, with more on the way, as a measure of the concept’s viability and success. “Community choice energy is a proven model that’s working,” Sandidge argued. “Long Beach would be no different.” The startup costs shouldn’t be an obstacle, he added. “The city is financially well enough to where they could create and launch a CCA and guard its general budget.”
As for the risk involved, Sandidge argued rate payers would be protected should a new local CCA falter or lose a large number of customers in its early years. “If a CCA failed, there [are] insurances and safeguards in place that protect that investment,” he noted. “You’re probably talking a few million dollars because you’re not procuring, in most cases, long-term energy contracts, initially.”
Data published by the California Community Choice Association shows at least some young CCAs have already entered long-term power purchasing agreements. Monterey Bay Community Power (MBCP) has secured two power purchasing agreements, 15 and 20 years each, only two years into its existence.
One thing both sides can agree on is more outreach is necessary to ensure that Long Beach businesses and residents are aware of the proposed changes to the local power supply. If a CCA was to be formed, consumers would automatically be opted into the newly-formed utility, but their bills would continue to carry the SoCal Edison letterhead.
“The public just doesn’t have any idea that this is on the horizon, and that’s residents and businesses,” Garner argued. “It’s invisible. Physically, nothing changes.” Sandidge noted that his group has held meetings with neighborhood associations to inform local residents about the proposed concept of a Long Beach CCA, but he agreed that more needs to be done. “There needs to be a much better, formalized public outreach approach to make sure everybody’s aware of what a potential CCA program could look like in Long Beach,” he said.