News Article

February 16, 2007
Central Valley Cities Get On Board Customer Aggregation Bandwagon
By Chris Raphael / California Energy Markets

A group of 12 Central Valley cities plus Kings County is looking to become the first to implement community-choice aggregation in California since a 2002 bill opened the playing field. Calling itself the San Joaquin Valley Power Authority, the entity has big dreams of serving 300,000 customers down the line and building new generation. But Pacific Gas & Electric, which currently serves most of the load in its planned territory, has reservations.

Pacific Gas & Electric is evaluating its position on the City of Fresno joining the San Joaquin Valley Power Authority, which has submitted a plan to form a community-choice aggregator consisting of 12 cities and at least one county in the Central Valley.

"Historically PG&E has agreed that community choice aggregation can be a viable option for some communities under certain circumstances," Jeff Smith, PG&E spokesman, told California Energy Markets on Wednesday. But Fresno's "claim that PG&E does not have necessary generation capacity to meet the desired need is not accurate, and makes us less likely to be supportive in that specific case."

The news may come as a surprise to Fresno. Rene Ramirez, the city's public utilities director, said that while "serious negotiations" still need to occur between the authority and PG&E, "so far PG&E has not said a lot to detract from community choice." At city meetings discussing aggregation, "PG&E was not there saying, 'Don't do that,'" he said. "And they have been very supportive in providing information."

The San Joaquin Valley Power Authority Jan. 29 filed its aggregation plan and statement of intent with the California Public Utilities Commission. It became the first entity to seek aggregation since AB 117, the law allowing aggregation, was passed in 2002.

The authority will include all of Kings County and 12 cities--Clovis, Corcoran, Dinuba, Fresno, Hanford, Kerman, Kingsburg, Lemoore, Parlier, Reedley, Sanger and Selma. Authority members say Tulare County has also expressed an interest in joining the authority, which will be run by the Kings River Conservation District.

The majority of potential authority customers lie in current PG&E service territory, with a minority served by Southern California Edison. The authority anticipates it will eventually serve about 300,000 accounts. Peak demand served will be about 1,310 MW by the summer of 2009, according to the implementation plan.

CPUC Commissioner John Bohn told CEM Thursday that while he has "heard a lot of talk about aggregation," the San Joaquin plan would mark the first filing received. Bohn said that in principle, "I believe in a competitive supply of power."

PG&E has fought hard against municipalization--most notably against the Sacramento Municipal Utility District's failed effort to annex more territory--but has not explicitly tried to derail any aggregation efforts. Fresno would be the authority's largest energy user, representing 56 percent of load. Even with a cost-responsibility surcharge, the authority predicts that generation rates will be approximately 5 percent below current PG&E and Edison rates, mainly owing to the authority's tax-exempt status.

Ramirez said that cost was a major factor in Fresno's decision to join the authority. "We spend about $9 million a year on energy costs," he said. Even with savings of 5 percent, that comes out to "about $50,000 a month."

Authority members also cited local generation as a reason for aggregation. "There hasn't been a baseload plant built by PG&E in our region since 1984," said Cristel Tufenkjian, chief of community relations and public affairs at Kings River Conservation District.

The district now owns two plants--the 165 MW Pine Flat hydro unit, which is under contract with the California Department of Water Resources through 2034, and a 97 MW peaker in Fresno, under state contract until 2011. The peaker was obtained as part of an energy-crisis settlement with the Williams Cos. in 2002.

The authority has selected Citigroup Energy to provide third-party power supply and plans to build a 500 MW natural gas-fired plant to serve its load. Plant financing costs are estimated at $400 million.

Larry Spikes, a Kings County administrative officer, told CEM that the building of generation "is one of the keys" to the authority's success. "They can generate electricity cheaper because they are tax-exempt."

Ramirez said the Fresno area is deficient in generation and is served by generators sited far from the area. "We feel like bringing in a 500 MW plant is the path of least resistance," he said.

A group in the city has also proposed building a nuclear power plant in the area, but Ramirez said that plant, if it is ever built, would not come on line for at least another 10 years and would face numerous hurdles (see CEM No. 905 [14]).

The authority plans to run a deficit of $2 million in 2007, when it will spend up to $3 million on staffing, contracting and program initiation costs. The cost to get the authority fully running is about $50 million. Its four-phase program envisions first providing electric service to schools and government agencies this summer, then adding large customers a few months later, medium-sized customers sometime next year, and lastly residential customers, likely in the spring or summer of next year. The authority expects about 10 percent of large customers to opt out of the program.

By 2009, however, the authority expects revenue of $405 million, an $8 million profit, and savings for customers of about $23 million that year compared with investor-owned utility rates.

As a CCA, the authority would have to meet the state's 20 percent-by-2010 renewables portfolio standard, and would have a renewable-energy requirement of about 215 MW. It anticipates initially contracting for renewables from a third-party provider to meet the goal. However, "our goal is to build a local project to meet some of that 20 percent," Tufenkjian said, adding that the authority will look at solar and biomass projects.

The City and County of San Francisco also has its eye on aggregation. The city, however, is still studying the issue, specifically how many of its large electrical customers it would be able to keep, according to Barbara Hale, public power director for the San Francisco Public Utilities Commission. The city has about 900 MW of load.

Hale said that large customers in San Francisco represent less than 1 percent of accounts, but would comprise 34 percent of energy consumption. Medium commercial customers are 1 percent of accounts but about 18 percent of energy consumption. She said the city would have to get feedback from large customers about the city's proposed CCA service. "Our commission has said to us in public workshops, 'What about the potential customer base?'"

PG&E spokeswoman Darlene Chiu told CEM that because San Francisco has not filed an implementation plan, the utility had no comment about the city's aggregation efforts. "It doesn't look like there is aggregation going on at this point," she said.

The CPUC will have to rule on the San Joaquin implementation plan within 90 days, and each member of the authority must ratify the final aggregation agreement, expected sometime between March and June.