News Article

April 25, 2008
Long road to community choice
Local leaders navigate power grab they say will bolster region's economics
By Gabriel Dillard / The Business Journal

In 2002, soon after the term "rolling blackouts" joined the lexicon of the West, the Kings River Conservation District started brainstorming ways it could restore energy stability to the area.

The state was in crisis a year before. Rolling blackouts left up to half a million California homes dark. The Pacific Gas & Electric Company - a stalwart in the state since 1905 - filed for bankruptcy, unable to pay exorbitant prices for electricity in an open, deregulated market dominated by firms such as Enron.

The Kings River Conservation District, a $14 million public entity charged with protecting the Kings River, wanted to change things, said General Manager Dave Orth. The experience was there, he said. Since 1984, the district has operated a 165-megawatt hydroelectric power plant at Pine Flat. At the time it was also preparing to build its 97-megawatt natural-gas-fired peaking plant in Fresno.

"The board saw the San Joaquin Valley as being very vulnerable," Orth said. "They looked at our successes with the hydro plant. They wanted to be part of the solution."

Six years later that concern has culminated into the San Joaquin Valley Power Authority - a coalition consisting of 12 local municipalities that plan to buy and sell electricity to its more than 115,000 customers. By contract, the district will purchase energy on behalf of the authority, filling the role previously held by investor-owned utilities such as PG&E.

PG&E has previously stated that the plan is a financial gamble for its customers since its foundation is an 8-year power purchase agreement with Citigroup's energy division. Unless customers choose to opt out of the program, their electricity will derive from contracts between Citigroup and various power generators in the West and possibly Canada.

The authority is the first in the state to take advantage of a 2002 law that allowed this buying model, referred to as community choice aggregation. As the first, it faced many hurdles, mostly in the form of negative lobbying by PG&E, said Ron Manfredi, authority board vice chair and city manager of Kerman. This led to a complaint by the authority that PG&E wasn't following the community choice aggregation rules set forth by the California Public Utilities Commission.

Orth said a recent settlement with PG&E should help clear the way to start transferring customer loads as early as next year.

The authority is promising customers an initial 5 percent discount on their electricity bills. It also has a goal to limit annual rate increases to 2 percent or less. Manfredi said this would motivate business that previously complained about the Valley's high energy prices to locate here.

"This will be a factor in luring jobs and businesses," Manfredi said.

PG&E is trying to hang onto its customers by campaigning in prospective cities. Through the recent settlement with the California Public Utilities Commission, PG&E has agreed to separate marketing activities against the authority from its daily operations as a utility. It will also qualify these marketing activities as reflecting the views of its shareholders, and not its customers. It will also pay up to $450,000 to the authority in legal costs.

The authority first lodged the complaint against PG&E in June 2007. After 8 months of legal wrangling, the parties agreed to settle. PG&E disputes that it violated any state rules, but acknowledges that it has gone from a neutral stance on community choice aggregation to marketing its own energy supply services to retain its customers.

"The agreement reflects the fact that PG&E has a strong interest in serving the needs of the Central Valley by providing safe, reliable and affordable electric service," said PG&E spokesman Jeff Smith in a prepared statement.

Smith added that the utility is preparing an official analysis of the power service agreement between the authority and Citigroup. He previously said that PG&E's historical electricity rate increases have ranged around 2 percent - less than the 3.5 percent quoted by the authority's consultants.

"We believe it is in the best interest to customers not to go with the plan," Smith said.

That was the message to Tulare County, which dropped out of the authority last year. Eric Coyne, spokesperson for the Tulare County Board of Supervisors, said PG&E lobbying had a role in the decision to leave the authority.

"PG&E was more vocal than [Southern California Edison], but both shared information on how they thought it would impact us. This is something we listened to," Coyne said. "This is not switching over your cable - this is essential service."

The authority also lost Fresno as a potential member last year when the city council voted 4-3 not to join the joint powers authority. Council members objected largely on air quality concerns. The district plans to build a 565-megawatt, natural-gas-fired plant near Parlier. This plant, currently in the licensing process, is meant to serve the authority's base load power.

Much has happened since 2002 when the district first stated talking to cities about community choice. Within the next month, the authority expects to execute the power service agreement with Citigroup as long as current market conditions ensure an initial 5-percent discount. According to the agreement, this would mean a price of $62.06 per megawatt hour for residential energy, a savings of more than $30 over spot market prices, as reporting by Bloomberg.

For a plan six years in the making, the last step is at hand. But if Citigroup isn't able to provide the initial 5 percent discount, Manfredi said the authority would wait until it can.

"It will be disappointing, but it doesn't mean the end," Manfredi said. "We won't do it until they are ready to do it."

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