The Breaking of a Power Monopoly: Community Choice?

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Pacific Gas & Electric has had a monopoly on the energy needs of the northern two-thirds of California since 1905. But a new state government entity called Community Choice Aggregation promises to turn over most conventional wisdom of who has the power.

Pacific Gas & Electric (PG&E), as an energy utility, has had a monopoly on the energy needs of the northern two-thirds of California since 1905. As an investor-owned power company, it has amassed great wealth, assets and political power over the years. However, there is a new state government entity, called Community Choice Aggregation (CCA), that promises to turn over most conventional political wisdom of who has the power.

The first attempt to break PG&E’s monopoly came in 1996, when Republican Gov. Pete Wilson pushed through a bill that loosened up the lucrative California energy market to the “Wild West” of a free market with few price regulations in the price of electricity sold to the state’s utilities. But it did not remove the restriction and cap on prices of what PG&E could charge to their retail customers for electricity. In 2000, drought and other problems put a strain on the California energy market. The notorious Enron Corporation artificially made the shortage worse by illegally shutting down their energy pipelines from Texas to California and manipulated markets to create an artificial power shortage in California. Enron began selling energy to a strapped PG&E at inflated prices but PG&E, by regulation, still had a regulatory cap restricting it from passing most of these energy costs to its customers. From April to December, energy rates increased an astounding 800 percent. Because PG&E was not able to require its customers to pay for most of this outrageous increase, its cash flow was drained quickly. PG&E was headed toward bankruptcy. The next year saw a series of infamous rolling blackouts, and the state had to step in and buy expensive power on the spot market because PG&E did not have the cash. The public did get stuck with paying for the state’s losses through taxes and the cost of PG&E’s bankruptcy that increased PG&E’s overhead and cost of doing business through higher electric bills. Billions of dollars were lost, with some estimates being as high as $45 billion.

After this ongoing trauma was inflicted on the state, PG&E emerged from bankruptcy with its monopoly intact. Many California communities were growing interested in renewable energy, but PG&E had gotten its rate of renewable energy only to less than 20 percent. In 2002, still smarting from the damage of the artificial market crisis, environmental and consumer groups looked for another way to try to infiltrate part of the PG&E’s power empire. This time, California legislators tried another route. They passed a law creating CCA. Communities now have the right to pool the citizens’ and businesses’ energy use in their cities or counties to purchase power for their aggregate unit. Communities such as cities and counties can also group together to form a larger CCA. CCAs are governmental agencies that generate income, similar to water districts.

How could these communities have their own power agencies compete with a powerful PG&E? To understand it, you need to think about PG&E having two monopolies. One is the ability to buy or make and sell electricity – that is, to sell electrons. The other is the infrastructure needed to deliver those electrons, through power towers and power lines, to your door. It would be ludicrous to think that a CCA could duplicate the infrastructure to deliver the electricity to your house or business. CCAs are just buying and/or generating the electrons. So PG&E still has a monopoly in delivering the electricity but the CCAs now have the ability to use PG&E’s power lines to compete and deliver electricity that has a higher percentage of renewable energy and perhaps even at a cheaper rate.

Many cities and counties, such as San Francisco, Marin County, Sonoma County and Berkeley, began to look and see if they could form their own CCAs, generate and buy the power and have a much higher percentage come from renewable sources. Marin County’s CCA, called Marin Clean Energy (MCE), ended up being the first one out the door. It was formed in 2008 and it started service in May 2010.

The Empire Strikes Back

My first reaction to the prospect of breaking up the energy monopoly of PG&E was that this investor-owned power giant born in 1905 would not passively sit back and allow these tree-hugging municipalities and counties to pick off some of its lucrative territory. My instincts were right.

On the June 2010 state ballot, a month after MCE had launched its service, PG&E financed the placement and support of California’s Proposition 16. California has an extensive system of allowing the public, by turning in petitions, or the Legislature to put propositions on the ballot each time there is a statewide election. The public and special-interest groups are allowed to donate money for or against these propositions, and there has been enormous money in this propositions election process. This proposition would require any state municipality or county to get a supermajority of two-thirds vote from the citizens, rather than a majority from a town council or county supervisors before they could spend funds or efforts to form a CCA. As anyone knows, demanding a supermajority usually kills any initiative in our closely divided country.

The supporters of Prop 16 couched their argument as a taxpayers’ rights issue, but it was abundantly clear that PG&E wanted to drown the CCA babies in the bathtub before they had a chance to walk. PG&E spent an astonishing $46 million on the proposition against the less than $100,000 raised by the opponents. The CCAs, by law, were not allowed to get involved in the election because they are government entities, so it was just up to environmental groups to mount a web campaign to defeat this proposition to save any chance of trying the CCA concept.

PG&E ended up with mud on its face when Prop 16 was defeated 53 percent to 47 percent, especially when electric rate payers realized that it had used $46 million of its assets to try to defeat the CCA little guys. It was an amazing win for the CCAs.

With the specter of the supermajority vote banished, MCE launched its service. According to the law, every power customer is automatically enrolled in MCE, but customers have the right to opt out and continue to buy electricity from PG&E and its 20 percent renewable energy. But MCE went one step farther: Fifty percent of MCE’s basic service, called Light Green, comes from renewable sources. Customers also can “opt up” for an MCE program called Deep Green, where 100 percent of the energy is renewable.

You might think that this Deep Green program would be costly and that 100 percent renewable energy could not compete with the likes of a giant like PG&E. Yet, according to MCE, rates that are coming out in the next few months from PG&E and MCE show that the Light Green program actually is slightly cheaper than the PG&E rates and the Deep Green adds only $5 a month to the average electric bill. And when you add in the typical commercial electric bill, both the Light Green and Deep Green rates are lower than PG&E. Because these smaller government CCAs don’t have the lobby and advertising budgets of PG&E and the bloat of a large utility company that has not had competition for more than 100 years, they can beat or meet PG&E prices with much higher renewable percentages. This defies the conventional wisdom: A governmental entity is more competitive than an investor-owned utility, and renewable energy is able to compete against traditional and more polluting energy sources. Government outcompeting investors? It’s a world gone mad for the status quo.

Because MCE wants to generate its own power as well as buy power, it also has taken some of its generated income and plowed it back into local projects that will generate power for it. Its biggest example is at the San Rafael Airport, where it helped a private airport turn itself into a solar power source for MCE by putting solar panels on the buildings. There are other local projects that generate electricity and provide local jobs. MCE claims that as it matures, it wants to keep expanding its own renewable energy generation. It is interesting to note that the Deep Green program, with 100 percent renewable, is 100 percent wind energy bought from wind farms in Oregon and Washington. The solar percentage for Light Green is also only 1 percent versus PG&E’s 2 percent, so MCE has the incentive to grow this part of its business on the rooftops of customers.

You would think that the billing for MCE’s income, while still charging the customer for the use of PG&E’s delivery infrastructure, could become very complicated, but it is all listed on one bill. MCE’s power is just a line item on a typical PG&E bill. I live in El Cerrito, and my town has not yet joined MCE. So I am still a PG&E customer. The MCE bill looks just like the bill I pay PG&E, only with an MCE line item.

MCE does have its detractors in the environmental community. To start service and have enough electricity to sell, MCE also contracted with Shell Energy North America; they have a contract until 2017. Sandy Leon Vest of the nonprofit Solartimes.org is one of MCE’s opponents, for this reason. She insists MCE and San Francisco CCA, which also has contracted with Shell, are allowing this large oil-based energy company to distort the purity of going completely renewable and MCE is subsidizing the beast.

It is a chicken-or-egg dilemma for the environmental purist. MCE would not be able to supply enough electricity without the Shell bridge contract so it can get to the point where it buys from more environmentally sound energy companies as these companies grow and MCE generates more of its own renewable power. Other environmental groups such as the Sierra Club and some chapters of the Green Party still embrace the goals of MCE and see the Shell contract as a bridge to get MCE started toward a more renewable future. The environmental movement will have to work out whether it wants the CCAs to begin operations now or wait until there are more clean producers of electricity.

MCE’s initial success has begun to snowball. Although Richmond, California, is a large city not in Marin County, the city and MCE decided to join to expand the customer base to 125,000 customers. In July 2013, Richmond joined MCE and has a seat on the MCE board. This is an interesting partnership with two localities that have very different populations. A closer look shows that the decisions of these two communities also defy conventional wisdom and stereotypes. (I have written about Richmond and its culture in another column on Sandy Hook.)

Marin County is one of the wealthiest counties in the San Francisco Bay Area, and Richmond is one of the most disadvantaged cities. The US Census shows that Marin is 86 percent white, is 55 percent college-educated, has a median household income of $91,000 and has a general poverty rate of 7.5 percent. Richmond is 31 percent white, is a majority minority city, is 26 percent college-educated, has a median household income of $55,000 and has an 18 percent general poverty rate. Yet, according to MCE, 25 percent of Marin County has opted out to go back to PG&E, compared with 16 percent of Richmond residents and businesses that have done the same. Also, Richmond has the most people willing to opt up to Deep Green.

A dominant stereotype is that well-off, well-educated people are the ones that take pollution and renewable energy most seriously and are the ones willing to pay more for a cleaner world. Once again this CCA experiment produces results that don’t fit the common wisdom of what and who will make the changes against a powerful monopoly and will invest in a renewable-energy world. I suspect that the citizens of Richmond, who live in the air and shadow of a large and accident-prone Chevron oil refinery, see up close what traditional fossil fuel energy can do to the environment and their health. A 2012 refinery fire at the plant sent up to 15,000 people streaming to local hospitals.

Other cities adjacent to Richmond, including my own El Cerrito, are exploring and seeking to join MCE. These towns are too small ever to consider their own CCA and look to support renewable energy by joining MCE. MCE spokesperson Jamie Tuckey and community affairs coordinator Alex DiGiorgio stress that MCE is not looking to build an empire by adding many more under its umbrella. The MCE board of directors wants to add only small cities within 30 miles of the county. It is interested in keeping MCE local but does advise and does do studies for other CCAs, such as the one that will launch in May for Sonoma County.

So are MCE and the CCA movement in California the solution to cleaner energy and competition for an intractable power monopoly? Time will tell, as more cities and counties decide to take the plunge. MCE has ambitious goals to generate more of its own power, yet PG&E still, in 2010 and 2011, has been caught spending $4 million to encourage their customers to opt out and sending barred letters to MCE customers. PG&E will have a hard time stopping the tide if the dozens of counties and cities across California continue to explore and create CCAs. It is a potentially effective solution with possible unforeseen consequences, but the launching of this new government option has had surprising and unpredictably hopeful effects in the march toward renewable energy and a competitive energy economy.

Next week I will explore how CCAs are succeeding in the other five states were they are being created.