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Locally run cooperative power utility programs that promise to provide clean energy choices and lower power bills for consumers are financially risky and may not be all they’ve been charged up to be, skeptics say.
Jim Phelps, a power contractor and utility rate analyst based in Novato, Calif., told The Epoch Times that many local politicians, in their zeal to score political points by bringing more green energy to their cities, are clamoring to join or form new Community Choice Aggregate (CCA) programs without doing enough homework.
“The numbers are doctored, and these cities are getting tied into liabilities they don’t even know about,” Phelps said. “When we have our next deep recession, these things [CCAs] are going to implode, and California is looking at a very, very high likelihood of blackouts, just like we had within Enron [20 years ago]. We’ve got a train wreck coming.”
Proponents in Orange County say the programs will benefit residents and consumers, offering them better rates while transitioning to state-mandated renewable energy requirements.
But Phelps said CCAs are “not green and clean,” and are a disaster waiting to happen. He has tracked them since 2009, and analyzed renewable energy portfolios, electric transmission systems, business plans, and financial activities of CCAs.
Orange County’s Community Choice
CCA programs permit local governments to procure power on behalf of their citizens and businesses from alternative suppliers while still receiving transmission and distribution service through their existing utility provider, according to the Environmental Protection Agency (EPA).
By aggregating demand, communities gain leverage to negotiate better rates by purchasing wholesale, and can enter into contracts with their own renewable power sources while still using the established infrastructure to have the energy delivered to customers.
Last year, the city of Irvine spearheaded an effort to launch a CCA, called Community Choice Energy (CCE), which would buy and sell energy and offer clean energy options, including solar-and-wind-generated power, to residents. But even before the Orange County Power Authority (OCPA) was formed in January to launch CCE in 2022, several city leaders had already begun to lose faith in the project.
Irvine has recruited Buena Park, Huntington Beach, and Fullerton to form the OCPA. Lake Forest had also joined, but recently dropped out of the deal.
The OCPA’s mission is to oversee CCE, which would have to meet state requirements that 40 percent of its power come from renewable resources by 2024, 52 percent by 2027, and 60 percent by 2030. The transmission of all electric power and billing will still be handled by Southern California Edison (SCE).
While CCE would buy the power and provide some customer service, SCE will continue to own the infrastructure of power lines and transmit electricity. SCE would also assume all legal liability for the safety or electrical equipment.
Irvine City Councilmember Mike Carroll, who chairs the OCPA board of directors, told The Epoch Times he “was not supportive” of the program at first, but fully supports it now after developing a better understanding of how CCAs work.
He said the CCE program will offer four main benefits: cost-savings for residents, consumer choice, increased use of renewable energy, and local economic development.
“That’s the beauty of it,” Carroll said. “It also allows us to potentially shed legacy costs of investor-owned utilities.” Those costs include dismantling the defunct San Onofre Nuclear Generating Station near San Clemente.
The councilmember also said Orange County residents should not feel beholden to an investor-owned utility such as SCE.
“It sets its own rates. You don’t get a choice in the matter,” Carroll said. “There’s really no reason we have to be subjected to that monopoly, and what that monopoly wants to do with its earnings. … Here we have the opportunity to take those earnings, and redirect them to essentially local economic development activity within our local communities. To me, it’s a win-win.”
Any new program comes with its share of doubts and naysayers, he suggested. “It sounds like there is a fair amount of misinformation, which is understandable. It’s something definitely different. … It’s all new, but it’s exciting.”
The Sales Pitch
Phelps said that CCAs, with the help of public sector labor unions, have sold cities on the idea that they can generate enough money for local governments to pay down debt on unfunded pension liabilities.
Ironically, he said, the debt stems from pressure from those same unions and bad policy decisions, including those of former California Gov. Gray Davis, who was recalled.
Carroll said he was not aware of any influence by organized labor groups to support CCAs, or any proposal to use revenue to pay down unfunded pension liabilities.
“I am not aware of that. Actually, I don’t even know how that would work,” he said.
Phelps added that the sales pitch of generating profit while promoting green energy and paying down debt sounds like a “win-win-win” situation for many cities, but it’s too good to be true.
He questioned the logic of how adding consultant fees and a layer of government bureaucracy to the process of providing power to residents could possibly reduce costs to residents.
If CCAs fail to live up to their promise, taxpayers—even SCE customers who opt out of the CCE—would be stuck with the bill, he said.
CCAs had initially told Irvine it could generate revenue for the city and save ratepayers as much as 5 percent on their power bills, but those estimates have since dropped to 2 percent or less.
“Right now, it’s floating. It’s 2 to 5 percent,” Carroll said. Though he admitted to being “really concerned about it, too,” he added he was very hopeful and “very optimistic that we’ll achieve significant cost savings.”
Last June, a third-party feasibility study conducted by MRW & Associates for the city of Irvine found the actual savings may be as low as 0.5 percent—10 times less than initial estimates.
The study concluded that 12 of the 19 operating CCEs in California offer residential savings between 0.5 percent and 2 percent, while five offered better savings. Only one CCE in SCE’s territory offered higher savings; another offered no savings at all.
The study suggested that savings could grow over time, however, after the cities have recovered startup costs.
“Consultants involved in writing CCA feasibility studies and helping to launch the programs typically oversell the product, often promising more than what CCAs can actually deliver,” Phelps said, adding that the salespeople often take staff jobs in the program.
“These guys really fly under the radar,” he said. “There’s billions of dollars behind the scenes. Orange County CCA’s consultant, whose feasibility study was used to justify launching the CCA, circled back and was recently awarded a not-to-exceed $150,000 contract for implementation services.”
Meanwhile, he said Huntington Beach’s independent evaluator MRW & Associates “concluded it was skeptical that the Orange County CCA would achieve even a minimal savings for ratepayers until 2023 or later.”
In its attempt to save residents less than $1 on their monthly electricity bills, the city of Huntington Beach is going to assume a liability of about $884 million in power contracts, according to Phelps. “And, the city leaders don’t know that, because nobody explained it to them before they signed up and joined the Orange County CCA program. The city will never afford to be able to leave the program, even if it turns out to be a bad deal.”
Huntington Beach Councilmember Erik Peterson recently told The Epoch Times the concept behind CCAs is fundamentally flawed.
“It’s putting politicians and lobbyists and lawyers in charge of your power bill, which is horrible. They know nothing about power,” he said. “If they can’t buy that renewable energy in the energy market cheaper than Southern California Edison can produce energy and sell it in the market, then our prices will be above market rate.”
During last November’s election campaign, former Irvine Mayor Christina Shea, the incumbent, lost to new Mayor Farrah Khan, a proponent of CCE who sits on the OCPA board.
Shea initially voted in favor of CCE, but has since gotten cold feet about the way it is being financed and managed. Even before she left office in December, she questioned the idea of Irvine bankrolling the program for other cities.
Irvine agreed to initially fund $2.5 million to start the program, with the condition that other member cities repay their share by January 2027. Until Irvine is repaid, it gets two votes on the OCPA board; the other cities get one.
As a fiscal conservative, Shea said there’s too much uncertainty involved for her to feel comfortable with CCAs. While she supports the concept of providing clean energy choices, she worries “the cost of creating a whole new bureaucracy is going to outweigh the benefit.”
“That is a huge problem for me,” she said. “I really am very conservative, and I don’t know how much city governments should be involved with speculative programs.”
Carroll defended the risk. “The city of Irvine is sitting on over $100 million of cash, and has an extremely strong municipal balance sheet, and I’m not worried about it at all,” he said.
The $2.5 million lent by Irvine to the OCPA will be paid back with interest, he said. “We’re not at any financial risk whatsoever.”
Any revenue generated by OCPA would not be returned to member cities, but instead remain with the power authority to be spent on regional economic development projects, including renewable energy.
Katherine Daigle, also a mayoral candidate in Irvine last November, joined Shea in questioning the cost and timing of expenditures to form a CCA in the wake of financial fallout from the COVID-19 pandemic.
Daigle recently wrote an opinion column for Politichicks on the CCE program in which she claims the city has spent “close to $800,000 in exploratory consulting fees” over the last two years on the CCE proposal alone. Much of the planning was done in closed-session council meetings, according to Daigle, who estimated tens of millions more dollars would be necessary by spring 2022.
“The only position I’ve always had is we couldn’t afford it,” Daigle told The Epoch Times. “I’m not opposing the program. I’m opposing the cost.”
Phelps said the Joint Powers Authority membership document includes language that enables a CCA to invoke eminent domain within a member jurisdiction’s boundaries, so cities that join JPAs may not even realize they are “giving away their sovereignty.”
“If there’s an empty field, the CCA can assert eminent domain and install a solar farm. Similarly, the CCA can invoke eminent domain and erect windmills. These are very real issues, given that CCAs claim they want to construct local renewables,” said Phelps.
“A more insidious issue is how government agencies grow and morph over the years. Is it possible that CCAs could grow to take on certain high-density housing authority elements under the charge of reducing carbon emissions attributable to commuters? If so, the eminent domain feature becomes all the more problematic.”
Carroll scoffed at the concept. “Eminent domain? What’s being seized? Do you think any city council in America would actually give up their power of eminent domain to another entity?” he asked. “There’s no chance that’s going to happen at the Orange County Power Authority.”
Carroll, who is a lawyer, called it “an interesting philosophical question.”
“I don’t even know if the city has the power to actually delegate that power and give it to somebody else. I’m almost certain it doesn’t. I’m not a land-use lawyer, but there’s no power of eminent domain, period,” he stated.
Though the idea of clean energy appeals to many environmentally conscious consumers, there is no way for them to know whether the power they actually use comes from a clean energy source because all energy goes into a common pool, Phelps said.
He also mentioned that renewable energy sources, including windmills and solar panels, have problems with intermittency.
“To keep the electric grid in balance—to keep the voltage across it constant—you’ve got to have constant production by the generating units,” said Phelps. Unlike gas- and coal-fired power plants, renewable energy sources dependent on sunshine and wind “bounce up and down like a Richter scale during an earthquake.”
“Whenever it bounces down, there has to be a gas or coal or some kind of a baseload generating unit out there that cycles up instantaneously and picks up the loads” to keep the grid in balance, he said.
“If it doesn’t … then we get a blackout. And that’s one of the dirty secrets that people don’t understand. We are never going to be 100 percent green on renewables.”
While Tesla and other companies are working on bigger and better battery farms, the technology remains too far off to offer a practical alternative to gas-and-coal fired power plants, Phelps said.
Negative Option Marketing
In 2002, State Assembly Bill 117 (AB 117) established CCAs in the state. And in 2011, Senate Bill 790 (SB 790), the Community Choice Aggregation Act, was passed.
According to a City of Irvine Finance Commission staff report from last August, there are now 19 operational Community Choice agencies that serve 154 cities in 20 counties. But prior to 2011, only one had been implemented in the state: Marin Clean Energy (MCE), launched in Marin County in 2010.
“There are people in Marin County that have been in MCE for 10 years … and just discovered they were in the program. They had no idea they were in it,” Phelps said.
AB 117 mandates “automatic customer enrollment” with an opt-out, rather than an opt-in feature—a practice called negative option marketing, according to the federal Fair Trade Commission (FTC).
Residents in cities with CCAs who don’t want to participate in CCE have a 60-day window to opt out of the CCE at no cost from the start date of the program in 2022.
Chris Abel, spokesman for SCE, said the utility company supports the rights of cities to form CCAs.
“We don’t make money for procuring power on behalf of our customers. Those costs are passed through to customers with no markup,” Abel said.
“The way that SCE makes money is we’re permitted to earn a regulated rate of return for the capital assets that we own, like poles, wires, transformers, etc. So, we’re not in competition for customers and the CCA does not impact the number of customers we have or profitability or anything.”
In terms of how CCAs affect ratepayers, Abel said each CCA program “is a little bit different,” and that joint rate comparisons are available on SCE’s website.
Jack Bradley contributed to this report.
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