Community Choice Energy: The Power of Competition

By Mark Hughes / San Diego Free Press

Community Choice Energy — also known as Community Choice Aggregation — offers us the chance to bring about a historic event: the conversion of a monopoly into a competitive business.

This happened to the telephone business by breaking up Ma Bell, and to the postal system, when FedEx started up. Would we have the data plans and services, even the phones we have today, without the AT&T breakup? Would we have overnight delivery if FedEx had not come along? The Post Office delivering packages on Sunday?

States with CCE Programs (those considering in gray)

Competition drives innovation and efficiency. CCE programs pit two businesses against each other, one the investor-owned utility (IOU), the other an entity set up by a city, county, or a collection of cities.

The two are given the business of procuring electricity to supply to the IOU’s transmission and distribution network. Each attempt to win customers through a combination of lower pricing, greener energy, better plans, and enhanced customer service. What’s not to like?

For a detailed explanation of CCE programs and what’s been happening locally on our path to CCE, see Tyson Siegele’s articles on the subject:

Popular CA Republican Mayor Praises Community Choice Energy
The Benefits of Community Choice Energy and How California Utilities Aim to Block Them
Community Choice Energy Myths Debunked, SDG&E Misdirection Exposed

Natural Monopolies

You probably remember from high school government class that there are a few sectors of the economy that work best as regulated monopolies: potable water production and distribution, sewage collection and treatment, roads and highways, cable networks, and electric utilities are examples.

These are natural monopolies because it would be prohibitively expensive to provide duplicate services from multiple vendors.

Imagine two or three sets of water piping networks in the state, competing highway systems (each a toll road), or multiple sets of power lines running through your neighborhood and into your house. So many places for birds to perch….

Many natural monopolies are government agencies, with oversight performed by a voting and voluble citizenry. Some though, like SDG&E and Time-Warner Cable (now Spectrum), began as commercial enterprises. These investor-owned monopolies must, of course, be regulated so they don’t gouge us unmercifully — as was the case of Martin Shkreli, who is the embodiment of pharmaceutical industry greed.

By the way, if you’re worried that the city won’t likely do a good job of running a CCE, this article does a good job of assuaging any fears. Across the US, as of 2013, municipal utility electricity cost an average of 14 percent less than IOU-produced electricity.

A Historic Opportunity

An electric utility is composed of two major pieces: the generation/procurement of electricity, and the transmission and distribution of that power to its customers.

JP Morgan’s comment, while being grilled by a Congressional Committee in 1915 for predatory banking practices. (Source: Wikimedia/Public Domain)

The California Public Utility Commission (CPUC) oversees the IOUs and tries to make them efficient and economical; it’s not an easy or simple task, and it’s the way things have been for more than a hundred years.

But then, in 1997, a new model was put into service. All it took was the recognition that the power procurement/generation piece of the puzzle could be made competitive and a historic change came about: a former monopoly could be transformed into a competitive business.

Community Choice Energy

While it remains infeasible to duplicate transmission lines and distribution systems, it makes perfect sense to have two providers compete for power purchase contracts and build power plants that will produce the cheapest power. After all these decades, the power of competition will bring its forces to bear on this essential public service. Rest assured, this competition has proven to be working far better than the PUCs before them. In Illinois, for example, 80 percent of the cities and towns are served by a CCE program.

However, while the value of introducing competition into the electricity market cannot be understated, a CCE program provides other benefits as well. In San Diego’s case, our CCE will be driven by the goals of meeting the city’s Climate Action Plan and serving its citizens’ needs. Its primary aims will be:

1. Affordably achieve 100 percent renewable energy for the city by 2035.
2. Procure local renewable energy whenever possible.
3. Create local jobs through the construction of local renewable energy facilities.
4. Create innovative programs that will accelerate the adoption of renewable energy.

Does all this sound like a promising idea — perhaps even a no-brainer? Well, not to some….

SDG&E Opposition to CCE

Last year, Sempra, SDG&E’s parent company, petitioned the CPUC for the right to form a lobbying arm to address its CCE concerns — the only one of the state’s three IOUs to make this request. The CPUC consented and Sempra Services was born. Their promotional video is below. It’s well made, highly professional and worth the watch.

Now let’s review some of the points it made:

We drive innovative climate action plans.

Response: We? It was the city who developed the plan.

Let’s focus on transportation emissions!

Response: That’s happening in parallel with the adoption of a CCE program. Reducing transportation emissions is a much tougher nut than bringing competition to the procurement and generation of power, but it will be done in conjunction with the CCE program—as well as addressing other sources of greenhouse gases.

We built the largest lithium-ion battery facility in the world.

Response: True — at the direction of the CPUC, and in response to the Aliso Canyon natural gas leak.

Quote: “To address the need for a cleaner, healthier future for San Diego families, Sempra established…Sempra Services [a lobbying arm]”.

Response: For our benefit?

Quote: “We believe you deserve an open and honest conversation…”

Response: An open and honest conversation is welcome. But notice that the primary benefit CCE provides — competition — isn’t mentioned in the video. Try searching for the word on Sempra Services’ homepage.

To understand why Sempra/SDG&E’s brought Sempra Services into existence, consider the situation from their point of view. The city’s aims with its Climate Action Plan were listed above; now let’s consider SDG&E’s aims:

1. Maximize shareholder return
2. Minimize risk to the corporation

These are the primary aims of any corporation, and well they should be. If Sempra/SDG&E officials and employees didn’t put those aims first they would be derelict in their duty.

But here’s the point: our goals (the Climate Action Plan) and SDG&E’s goals don’t overlap. They care, first and foremost, about their company, as they should. We care about our city and our environment.

Yes, it’s going to make life a little tougher on SDG&E to have to compete and they can’t be faulted for wanting to avoid that. But it’s the price to be paid for accelerated innovation, more efficient operation, and a greener future.

Now, all that behind us, here is the schedule of events surrounding CCE that are coming up:

July 18 13 – the city’s technical study of CCE to be completed (Ed.: note rescheduled date)

August 10 – the city’s Sustainable Energy Advisory Board will review the study and return advice

Concurrently, city staff will also review the study and report to city councilmembers. A city council vote on the recommended CCE program is expected late in the year

Call to Action

You can support SDG&E’s goals by doing nothing. On the other hand, if you want to help bring about innovation, an acceleration toward a fully renewable future, and competition, then please write or call the city councilmembers listed below.

You may ask if that is important; does it really matter? Consider that Orinda, a town east of Berkeley, rejected CCE on the basis of an insufficient indication of interest from its citizens.

City of San Diego Contact Information:

Mayor:
Kevin Faulconer, Mayor (619) 236-6330 kevinfaulconer@sandiego.gov

Councilmembers:
Myrtle Cole, Council President (619) 236-6644 myrtlecole@sandiego.gov
Mark Kersey, Council President Pro Tem (619) 236-6655 markkersey@sandiego.gov
Barbara Bry, Councilmember (619) 236-6611 barbarabry@sandiego.gov
Lorie Zapf, Councilmember (619) 236-6622 loriezapf@sandiego.gov
Christopher Ward, Councilmember (619) 236-6633 christopherward@sandiego.gov
Chris Cate, Councilmember (619) 236-6616 chriscate@sandiego.gov
Scott Sherman, Councilmember (619) 236-6677 scottsherman@sandiego.gov
David Alvarez, Councilmember (619) 236-6688 davidalvarez@sandiego.gov
Georgette Gomez, Councilmember (619) 236-6699 georgettegomez@sandiego.gov

[Editor’s note: updated 7/10 to reflect rescheduled date of the release of the City’s study on CCE programs]