News Article

April 18, 2008
Valley cities launch local power grab
Coalition takes on PG&E to offer users lower electric rates
By Gabriel Dillard / The Business Journal

Next year, something strange will appear in the electricity bills of 200,000 Central Valley power customers - a notice informing them that they now have a choice about where they buy their power.

For many, the notice will be unexpected. Yet it will determine how much they will pay for electricity in years to come. For a business, that number is crucial to maintaining operations.

Just ask Dave Biswell, owner of Ethylene Control in Selma. Each year his business sells millions of mineral packets that are used to filter ethylene gas out of packinghouses, which he says prolongs the life of the fruits and vegetables inside. Without affordable electricity, there is no business, he said.

"I need it to run my equipment," Biswell said. "Power is of great importance to me."

Recognizing the need to guarantee affordable electricity, a coalition of local cities took it upon themselves to secure their own supply to sell directly to customers - at a price they say will be 5 percent less than what the for-profit utilities currently charge.

The San Joaquin Valley Power Authority consists of 12 local municipalities that also promise rates will increase by no more than 2 percent a year over investor-owned utilities such as Pacific Gas & Electric Company and Southern California Edison. The Authority consists of the electrical loads of Clovis, Corcoran, Dinuba, Hanford, Kerman, Kingsburg, Lemoore, Parlier, Reedley, Sanger, Selma and Kings County. Power users in these areas will automatically become part of the program unless they choose to leave it by responding to an opt-out notice in the mail.

Kerman City Manager Ron Manfredi says City Hall alone will save $30,000 a year on its utility bills.

Community Choice Aggregation is the umbrella term for the process of cities buying and selling electricity to customers. Assembly Bill 117, passed in 2002, made it possible for California cities and counties to create the systems. An estimated 50 California municipalities are interested in the program, yet the authority is the first in the state to start the process.

Nearly four years after the plan was first envisioned in the Central Valley, it has reached the home stretch. The next step is the approval of a power purchase agreement with Citigroup that will supply the base power for the authority's customers. According to officials, the plan can save users in the system a total of $129 million on their electricity bills in the next six years compared to the investor-owned utilities.

Some aren't so sure if the authority can deliver. The plan has faced a number of challenges since it was first initiated in 2004. Along the way the authority lost a member agency, Tulare County, whose officials felt the plan was too much of a gamble. It has also faced opposition from investor-owned utility PG&E, which recently settled accusations in front of the California Public Utilities Commission that it unfairly opposed the authority.

How customers will react to this change is one of the biggest concerns for PG&E, said spokesman Jeff Smith. He contends that the utility sells electricity to customers at cost, so there won't be an overt revenue loss. Power will be transmitted using PG&E's infrastructure, and the utility will continue billing customers - yet it will be accountable for its monthly natural gas deliveries only, not electricity.

"People are still going to receive bills from PG&E and we are going to receive questions that do not come under our purview or control," Smith said.

There is also a concern that members of the public who will be impacted the most by the plan won't have a say before the process actually starts. A public hearing on the Citigroup contract in Clovis last month drew only 11 participants. A previous public hearing in Kingsburg was also sparsely attended, said Thomas Haglund, authority chair and deputy city manager of Hanford. He stressed the importance of constituents being aware of the change.

"We want to hear from businesses and industry, as well as residential customers, about their feelings on this and their potential to save money," Haglund said.

The authority has contracted with the Fresno-based Kings River Conservation District to purchase electricity that will be resold by the authority to its members. David Orth, the district's general manager, said the Citigroup contract provides a favorable hedge. The financial giant will guarantee monthly prices as long as future electrical needs don't rise more than 5 percent over current projections, he said.

If future power loads grow faster than expected, the district will have to purchase the electricity from Citigroup at market prices, which will likely be higher than the contract price, Orth said.

He added that the district will also be able to use tax-exempt financing to purchase energy in advance. He said a final Internal Revenue Service ruling on that point is pending, but that it looks favorable to the district. Tax-exempt financing will make it cheaper for the district to borrow money for energy purchases, he added.

Citigroup will procure the energy from a variety of contracted sources. It will provide conventional electricity as well as electricity from renewable sources. Under current regulations, a minimum of 40 percent of the power to be supplied by Citigroup would come from generation sources within California. Once the contract is signed, Citigroup must identify all sources of generation, Orth said.

The authority will hold one final public hearing to vet Citigroup's electric supply agreement. It will be held at 6 p.m. on Thursday, April 24 at the Kings County Government Center at 1400 West Lacey Boulevard in Hanford. The authority will hold its regular board meeting at 4 p.m. prior to the public hearing.

Haglund expects that the authority's executive committee will meet about a week after the public hearing to make the final determination on the contract. He said the meeting will be noticed and open to the public. Once the contract is signed, the program is initiated.

Affected customers will receive two notices prior to the transfer, as well as two notices after in their power bill. If customers want to opt out of the program and remain with their utility service, they will have 60 days to do so without incurring an opt out fee. The authority has yet to determine the amount of this fee, but it will be reset each year.

Orth said if all goes according to plan, later this year the electrical loads of each municipality will be transferred to authority service. Early next year, large business and industrial loads will be converted, followed by medium-sized business customers and then residential accounts.

For more information, go to www.communitychoice.info

The reporter can be reached at 490-3467 or e-mail gabriel@thebusinessjournal.com