June 4, 2007
A Valley-based electric power authority is being questioned about its promise to provide 300,000 customers with cheaper electricity than private utilities.
Pacific Gas & Electric Co., which could lose customers to the public San Joaquin Valley Power Authority, said the agency cannot provide the rates it promises.
And even officials of some cities weighing whether to join the authority say they have doubts about the project's ability to provide cheap electricity without fouling the air.
The San Joaquin Valley Power Authority could serve as many as 14 Valley communities -- two counties and 12 cities. It is being funded by the Fresno-based Kings River Conservation District and touted as a less costly alternative to investor-owned utilities.
If approved, it would be the first Community Choice program in California with a board comprised of local officials. Using the large customer base would help the authority keep its rates low, district officials say.
The authority would provide electricity generation, which comprises about one-third of a power bill. With lower rates, the communities could gain a competitive advantage in attracting economic development, district officials say.
Hanford and Kerman have joined the authority along with Kings County. Other agencies will be deciding this month.
The city of Fresno would use 45% of the power generated by the authority. Council Member Jerry Duncan is having second thoughts about joining.
He said he doesn't believe the district should build a power plant near Parlier, because it would add pollution, and he said he has concerns about how difficult it might be for customers to leave the authority. If a government joins the authority, all its residents would be charged authority rates unless they choose to stay with PG&E.
But Rene Ramirez, Fresno's public utilities director, is optimistic about the authority.
"Over a 20-year period, the customers in the city of Fresno have an opportunity to save $500 million on their power bills," he said. "That's a lot of potential economic development for companies here and companies that may want to come here."
The city of Fresno alone would save $600,000 to $700,000 annually on power bills, money that can be used to hire police or fill potholes, he said.
Even if Fresno does not join, district officials say their plan can proceed.
A gas-fired power plant being considered by the district has been criticized by residents near Parlier because it would be near a school and add pollution to the Valley's air basin, one of the nation's dirtiest. But the district doesn't need a plant to provide electricity. It could also buy electricity from CitiGroup Energy, a firm that trades in power.
CitiGroup Energy representative Dave Houston told Clovis City Council members that his power-trading firm would sell power for 5% less than PG&E -- and would guarantee that those rates wouldn't rise more than 2% per year until 2015, a slower increase than what PG&E has charged in recent years.
But PG&E officials say that's a "teaser rate" that couldn't be sustained.
The Valley will need more electric generation capacity to improve reliability, district officials say.
If built, the plant would add that reliability at a lower cost than investor-owned utilities because the district has access to tax-exempt financing and does not have to show profits for shareholders, said David Orth, the district's general manager.
Residential users are promised discounts of about $3.50 per month off the generation portion of their bills, according to studies done for the district. Industrial users are expected to benefit most.
After two years of discussion about the program, PG&E officials have started attending local government meetings, questioning rates and the district's experience and ability to build a power plant at a $350 million cost noted in a consultant's report two years ago.
In recent interviews, Orth has confirmed the plant's price has risen and could exceed $600 million if all 14 agencies join. Customer fees would be used to pay the plant's debt. But, he said, the plant would only be built if it makes economic sense.
The district operates a gas-fired plant in Malaga and a hydroelectric plant at Pine Flat Dam.
Jeff Smith, a Fresno-based PG&E spokesman, said the utility doesn't believe the project pencils out for its customers, whose generation rates would be paid to the authority.
"It's our belief that the numbers and what is being put forward are not good data, and the best situation for customers is to have PG&E play that role," he said. "We want to preserve the idea of customer choice, but we want our customers to make an informed choice."
He also said billing still will be done through the utility and customers will call PG&E first to complain about the generation portion of their bill.
Southern California Edison has not commented.
A study is under way to determine if Tulare County -- the second-largest would-be participant -- would join the power authority, said Brian Haddix, county administrative officer.
There are concerns that community choice has not been done before in California.
"The board wants to know if these really are significant savings, risks and what if the savings aren't there?" he said. "And what if the program goes under? What are the costs of getting back on the grid?"
With local energy service, residents can decide what they want in a local energy plan, Orth said.
"The program is aimed at lower and predictable energy rates," he said. "We also want to establish local control over energy planning."
The authority also could establish policies to spur investment in local generation capacity.
When it comes to bond repayment, Orth said, the district would be on the hook. Revenue to pay for a plant and other operations would be generated from rates.
Orth also said pollution concerns can be met with emission reduction credits, leading to more emissions removed than the power plant would create. Those credits, he said, can be acquired from other sources within 15 miles of the plant's proposed Parlier site.
Ron Manfredi, Kerman's city manager, says the authority is similar to the Central San Joaquin Valley Risk Management Authority, a group of cities that pool their insurance premiums and risk.
The risk management authority started 25 years ago with fewer than 12 communities and now covers 56 government agencies in 12 counties, he said.
Manfredi said crucial energy decisions, such as building a plant, can be made locally. PG&E makes such decisions in its San Francisco headquarters with little or no local input, he said.
"This is the opportunity for making decisions on a local level and potentially generating energy and making rate structures transparent," Manfredi said.
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