News Article

February 9, 2007
San Joaquin Valley First to Seek Community-Choice Aggregation
By William J. Kelly / California Energy Circuit

Thirteen local governments representing 800,000 people in the San Joaquin Valley asked the California Public Utilities Commission to allow them to take direct control of their electricity supply January 29. It is the first request of its kind and largely the brainchild of the Kings River Conservation District in response to the state's 2000-01 energy crisis. Much of the expected power would be from a new 500 MW power plant that has yet to be formally proposed.

The CPUC is expected to take action in 90 days on San Joaquin's community-choice aggregation plan.

"Community choice is an opportunity for this region to take control over planning and development of its future energy resources," said David Orth, conservation district general manager. The plan includes a commitment to meet 20 percent of the region's power needs with renewable energy by 2010.

It also is expected to cut the energy component of local electricity bills by 5 percent, saving the area's 278,000 electricity customers $780 million over 20 years.

"This will be a great benefit to the San Joaquin Valley," said Ashley Swearengin, California State University at Fresno's Office of Community and Economic Development director. She said the savings would put "buying power" in the hands of valley consumers, as well as creating new opportunities for local "clean energy entrepreneurs."

Pacific Gas & Electric did not take an immediate position on the community-choice plan. The communities, including the sprawling city of Fresno, would more or less secede from PG&E and, to a lesser extent, Southern California Edison territory. Unlike true municipalization, community choice leaves the investor-owned utility's basic infrastructure in place but allows local governments to buy their own electricity on the market. The utility would continue to distribute the energy. In the past, PG&E and Edison have vigorously fought cities' attempts at pure municipalization.

"That is certainly an option communities can look at," said Jeff Smith, PG&E area representative. The utility is expected to lay out its position on community choice in a response filed with the CPUC.

Despite the promised savings, Edison is urging local officials to carefully weigh the promised benefits and financial risks, said utility spokesperson Charley Wilson.

"This is an unforgiving business, and you're putting millions of dollars at risk," he said. The communities are banking on being able to purchase electricity for less than from investor-owned utilities even though there is considerable price volatility in the wholesale power market, Edison's Wilson added.

He pointed out that aggregation communities will be subject to the multiple state objectives of reducing greenhouse gas emissions, increasing renewable energy, enhancing energy efficiency, and providing reliable electric service to businesses and residences.

Under the San Joaquin Valley plan, a joint powers agency would supply electricity to utility customers in the cities and unincorporated county areas. PG&E and Edison would continue to operate the area's grid. Customers would pay investor-owned utilities for power distribution service and pay the joint powers agency, known as the San Joaquin Valley Power Authority, to purchase electricity on their behalf.

The authority would govern the community-choice program, and the Kings River Conservation District would staff and manage its daily operations.

Much of the power would come from the Kings River Conservation District, explained Cristel Tufenkjian, district spokesperson.

To jump-start the community-choice program, the conservation district entered an agreement with Citigroup to initially supply electricity to the power authority.

Later the conservation district plans to supply much of the power.

Most of it would come from a new 500 MW gas-fired generating plant the district is planning to construct near Fresno, said Tufenkjian. The district plans to file an application to build the plant with the California Energy Commission in May, she said.

Existing facilities could also supply power. However, the district's 97 MW Malaga Peaking Power Plant and 165 MW Pine Flat Hydro Electric Power Plant will be tied up for years under power supply contracts with the state Department of Water Resources.

Ultimately, a lot of the power needed in the area would have to be purchased by the authority from other suppliers. Demand is expected to total 5,218 GWh a year by 2009, after the plan is fully rolled out. Peak demand in the area is currently around 1,350 MW.

The plan envisions tapping the valley's rich agricultural biomass resources and sunshine, said Tufenkjian.

The authority would roll out the plan in phases to customers in the area, who would be automatically enrolled unless they opted out. Municipalities would be the first to come into the new system, followed by large commercial customers. Medium-size commercial accounts would be next and finally residential customers in late 2008.

The administrative cost of the rollout is expected to run up to $50 million, according to the authority's plan. Much of the cost would be financed through letters of credit or commercial paper.

The plan still faces substantial hurdles.

First, it must pass muster with the CPUC, where investor-owned utilities could contest elements of the community-choice blueprint, said Tufenkjian.

In addition, the power authority and the conservation district must develop an electricity purchase agreement, she said. Then each local government participating in the plan must enter a separate agreement with the authority. Finally, she noted, in the fall, each city must vote on whether to join the program.

Edison will be advising local governments as they consider those contracts and take final votes on whether to opt into the community-choice plan, said Wilson.

The length of the various agreements is likely to be a key factor in the conservation district's ability to finance the 500 MW power plant, which would become a cornerstone supply of electricity under the community-choice plan, acknowledged Tufenkjian. If cities want to enter only short-term contracts to test the waters of community choice before making long-term commitments, it could affect the conservation district's ability to finance the plant.

Local governments that have joined the San Joaquin Power Authority are the cities of Clovis, Corcoran, Dinuba, Fresno, Kerman, Kingsburg, Lemoore, Hanford, Parlier, Reedley, Selma, and Sanger and Kings County. PG&E serves the area, except for Hanford and part of Kings County, which are in Edison territory.