Sometimes government pursues bad ideas.[i] Usually the ideas start out bad and then it gets worse. That’s the case with Contra Costa’s interest in “Community Choice” electricity.
Contra Costa County is broke. No, to be accurate, it’s actually beyond broke: The County spends more than it takes in, and it owes more than it’s worth.
Now Contra Costa wants to take another big risk with a lot of money – money it doesn’t have but will borrow from future generations. Contra Costa County wants to get into the energy business because everyone knows high-risk business ventures are the best cure for money problems.
Cheerily-named “Community Choice” electricity programs are new to California, with three currently operational: Marin Clean Energy (2010), Sonoma Clean Power (2014) and Lancaster Choice Energy (2015). San Francisco’s Clean Power SF is expected to launch its program later in this year.
Here’s how it works. Local government agencies form a new, semi-invisible government agency to purchase and sell electricity. The local utility company, such as PG&E, provides transmission, distribution, and customer billing services for a fee paid by the new agency’s customers. All people who live and do business in the area become customers of the new agency unless they ask to “opt out.”
The new agency must compete with the local utility company for customers. Government can make everyone their customer for a moment, but then they have to keep them. So what’s their pitch? Is the energy they’re selling greener than, say, PG&E? Is it cheaper? Is it managed by superior experts in the energy industry?
That’s a big nope . . . three nopes, to be precise.
Community Choice energy isn’t necessarily greener.
Most electricity is made from fossil fuels because it’s cheap, reliable and efficient. Wind and solar power are intermittent, so fossil fuels are needed to ensure 24/7 power. In fact, generating more wind and solar energy actually increases demand for fossil fuels.
Advocates of “CCA” (community choice aggregation) programs say their energy is greener, but that’s not always the case. CCAs often buy renewable energy credits to “greenwash” fossil fuel energy. They buy “renewable energy credits” and, like water into wine, this abracadabra makes fossil fuel energy greeny clean. This lowers costs so CCAs can compete on price with utility companies. But the dirty little secret is some CCA energy is green-in-name-only.
So if “Community Choice” energy isn’t as green as we’re led to believe, certainly it must be cheaper. But, alas, CCAs can’t promise cheaper rates.
Marin Clean Energy (MCE) has been operational since 2010. Initially, rates for MCE’s cheapest electricity option were slightly less than PG&E. Today MCE offers three options, all of which cost more, on average, than PG&E. MCE estimates its customers pay a monthly average of $4 to $32 more than PG&E, with the “cleanest” energy options the most expensive.
Sonoma Clean Power (SCP), established in 2014, offers customers two options. Currently its basic option costs about $7/month less than PG&E, while its all-renewable option costs about $11/month more than PG&E.
So if it’s not greener and it’s not cheaper, then perhaps the people running these agencies are more knowledgeable. Maybe they’re more innovative and competent than investor-owned utility companies like PG&E, so they deserve our trust to make our energy future bright.
That sales pitch falls flat because it turns out they’re actually less knowledgeable about the energy business than their non-government competitors.
Investor-owned utility companies like PG&E have decades of experience in procuring low-cost, reliable electricity. Their governing board members have industry experience.
By comparison, “Community Choice” agencies are relatively inexperienced and their governing boards have no industry background to inform decisions.
While Community Choice is new, government-run electric utilities are not. The Association of Bay Area Governments (ABAG) suspended its Electrical Aggregation Program in 2001, characterizing the short-lived, multi-agency program a “risky venture” due to market and regulatory uncertainty.
Less than two years ago, the City of Hercules sold its Hercules Municipal Utility following what was dubbed “a decade-long, multimillion-dollar misadventure.” Overstated growth projections, unrealized profits, and heavy debt contributed to the electricity utility’s failure, leading to its sale to PG&E in 2014 amid a firestorm of public outrage.
The Northern California Power Agency (NCPA) is a Joint Powers Agency established in 1968 to sell power from its geothermal and hydroelectric facilities. Its 15 member agencies include the Port of Oakland, BART, the cities of Alameda, Palo Alto and Santa Clara, in addition to agencies in northern California. NCPA’s finances are strained due to heavy debt service requirements for more than $835 million in long-term debt.
Local elected officials serving on CCA governing boards are good at getting elected and running their cities; they’re not good at competing in high-risk industries over the long term. Experience proves they’re decidedly bad at it.
At the end of the day, Community Choice Agencies offer nothing to consumers. They simply cannot compete, long-term, with local utility companies. Facts don’t deter special interest groups that worship at the altar of Climate Change, profit from government contracts and urge government expansion with tireless zeal. Good sense demands that public officials resist the temptation to jump on this bandwagon.
Energy is a long-term business. Procurement contracts are non-cancellable and can span 30-40 years into the future. Cities that join CCAs are on the hook for large, long-term financial obligations. When things turn south (as they surely will), member agencies are stuck because they cannot afford to exit the program.
For example, as of March 31, 2015 Marin Clean Energy had outstanding non-cancelable power purchase commitments of approximately $886.5 million for energy and related services through October 31, 2041. This equates to more than $52 million for each of MCE’s 17 members, which include the Contra Costa cities of El Cerrito, Richmond, and San Pablo.
As of June 30, 2015, Sonoma Clean Power had non-cancelable power purchase related commitments of approximately $505.3 million for energy that has not yet been provided under power purchase agreements that continue to December 31, 2026. This equates to more than $56 million for each of SCP’s 9 member agencies.
Once a county or city government gets into the energy business they can’t get out, short of losing their shirts and abandoning the enterprise altogether, as happened in Hercules. CCAs are destined to become just another government money pit that will increase the burden of government debt our children and grandchildren must pay for such obligations as Contra Costa County’s $1.7 billion in unfunded pension and retiree healthcare promises.
Why add more debt for the sake of go-along-to-get-along political correctness?
Today we’re surrounded by local agencies unable to deliver on service commitments due to scandalously bad decisions – such as BART forgetting to save for the inevitable replacement of its train cars.
State law allows cities and counties to generate, purchase and sell electricity – but that doesn’t mean they should. Cities and counties already have enough to do. The energy business is volatile, competitive and best left to private firms whose investors choose to take risks with their money.
Whatever decisions government makes, you and I go along for the ride. But . . . we have the keys! And the government can’t drive drunk without our consent.
You and I aren’t stupid. We’re also not irresponsible. So when local officials approach us with slurred, sweet talk saying, “C’mon on, baby, let’s go for a ride. Relax, I’m fine. Don’t worry so much. Let’s get out of here” – We need to grasp those car keys tighter and tell them to go home and sleep it off. We’ll talk when they’re sober, clear-headed and ready to face reality.
Read more about Community Choice here.
[i] The Law of Bad Ideas: Bad ideas don’t go away until they have been tried and failed multiple times, and generally not even then.
– Corollary One: Left alone, bad ideas get worse over time.
– Corollary Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse.
– Corollary Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented.
– Corollary Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists.
– Corollary Five: No politically acceptable idea is so bad it cannot be made worse.
Source: Mike Shedlock, http://bit.ly/1JMSmfo