News Analysis: Clean Power Alliance Faces Hurdles in Delivering on Promises

Later this year, South Pasadena residents, businesses, city facilities, and schools will begin getting their electricity in a new way from the Clean Power Alliance of Southern California.

The Alliance—an organization formed by Los Angeles and Ventura Counties and 29 cities, including South Pasadena—promises to immediately save people money on monthly power bills and deliver higher levels of solar, wind and other forms of renewable energy than currently supplied by Southern California Edison.

In time, it further promises to create new local jobs and opportunities, particularly with more solar systems on city hall rooftops, reservoirs, local businesses and the like, plus incentives for energy efficiency retrofits in homes and businesses and installation of electric vehicle chargers.

These are big promises, no doubt, but the Alliance late last week filed an updated plan with the California Public Utilities Commission that once approved will make it the biggest so-called community choice aggregation program in the state. It will have more than 1 million customers, revenue bond borrowing authority, and some $800 million of annual income.

In community choice programs, municipal government organizations purchase power in place of the local private utility, although the utility still delivers it and bills customers for power service. Money collected for the actual electrons is sent to the choice organization and the utility retains funds collected for distribution and billing service.

In South Pasadena, the City Council late last month voted to opt for the Alliance’s 50 percent renewable energy plan for local businesses and residents at a projected overall power bill savings of 3 percent compared to SCE. Residents and businesses will be automatically enrolled into this power plan, but also will be able to choose plans with 36 percent green power at projected bill savings of 4 percent or 100 percent renewable electricity at a projected cost increase of about 6 percent over SCE. Those who want to stay with SCE, with a renewable energy level of 28 percent in 2016 that’s expected to reach 34 percent this year, will be able to do so.

“We’re excited to offer South Pasadena residents a choice they’ve never had,” said Ted Bardacke, Alliance executive director.

Mailings will go to residents explaining their choices nearer the service startup dates, currently set for June for businesses and institutions and December for households.

Meanwhile, the Alliance must take several actions to make good on its promises of savings, cleaner energy, and local economic development. In doing so, legal and policy uncertainty abounds, particularly over how the CPUC will administer an existing legal requirement. That requirement mandates that choice programs essentially buy utilities out of both the long and short-term power purchase contracts they’ve entered to supply electrons to customers who become part of choice programs like the Alliance.

Savings Promise

Residents and businesses won’t really know how much they can save until the Alliance actually adopts power rates, due in April said Bardacke, and power supply contracts. Promised power bill savings at this point are based on projections made in the organization’s business plan. While other choice organizations in Marin and Sonoma Counties have been able to purchase power and meet their projected savings levels, the wholesale power market in California is firming after a long period of lackluster prices due both to power plant over capacity and stagnant demand, in part stemming from the Great Recession and effective energy efficiency programs.

With the economy now in recovery, much of the low hanging energy efficiency fruit already picked (think LED lighting), and increasing numbers of electric cars that need to be charged off the grid, the California Energy Commission projects that power demand will rise almost twice as fast over the next ten years as it has over the last. This can be expected to put upward pressure on prices.

At the same time, a shakeout in the electric generation industry is prompting power producers to close down old and unneeded plants in an effort to cut costs and turn a profit.

Simultaneously, the CPUC is in the middle of revising the method for determining what choice organizations must pay to utilities to buy them out of their no longer needed power supply contracts. Utilities claim past payments have been insufficient for them to fully recoup their costs.

Bardacke said that as long as the CPUC issues a “fair” decision the Alliance should be able to effectively deliver on promised savings.

Should savings fail to materialize and cities drop out of the Alliance, the terms of the membership agreement requires them to make the choice organization whole for any costs of the power it’s contracted for on their behalf.

Renewable Energy

Meanwhile, in the face of cost pressures and the need to deliver on savings, the Alliance earlier this year outlined its strategy for buying power for the 85,000 industries, businesses, and municipal facility customers it must begin supplying in June.

That strategy calls for Alliance power purchases that are largely short-term and include renewable power and the associated renewable energy credits generated by out-of-state wind and solar plants that often can’t actually deliver their power to California’s grid. The actual power the Alliance gets for its customers, therefore, will often be substitute power that may be less than 50 percent renewable.

State law, however, allows the Alliance to claim that its power is renewable as long as it has purchased the renewable energy credits associated with power produced at the out-of-state plants.

Looking longer term, the Alliance’s implementation plan shows that while it will beat SCE on renewable power for now, it’s plan at this point is to meet the state’s 50 percent renewable energy standard, as must utilities like SCE, but not to exceed it in terms of its overall power mix.

At the get go, the plan outlines no immediate or specific plans for programs to boost local solar power production, energy efficiency, or electric vehicle charging infrastructure in South Pasadena or elsewhere. Residents and businesses with existing solar systems, said Bardacke, “should not be [economically] harmed” by the upcoming transition to the Alliance compared to their existing arrangements with SCE.

Overall, Bardacke said, the Alliance’s first focus is to get the choice program off the ground, but he added that the organization’s board will have to establish an approach and time frame for developing local clean energy programs in the coming months.

Local Clean Energy & Economic Development

So this leaves questions about how and when cities like South Pasadena will be able to save more money and reduce their own carbon footprints by hiring local companies to install solar energy systems to meet their own power needs and to get incentives for energy efficiency retrofits and installing public electric vehicle chargers.

Choice programs in Marin and Sonoma County have done some of these things, but only after being in service for years.

While their previous experience would seemingly allow the Alliance to offer programs to incentivize local clean energy facilities and efficiency at the outset, its early moves suggest local communities will have to wait for economic development benefits. So far, the Alliance is moving to purchase power with renewable energy credits generated out of state, to pick River City Bank in Sacramento for its banking needs, and to contract with Texas-based Calpine for data management services.

The coming months will shed more light on how the Alliance will keep its promises to local residents and businesses.