San Diego is making gains on its plans to build a new public utility called San Diego Community Power, but like a baby bird, it’s not yet ready to leave the nest for California’s notoriously complex regulated energy market. As the coronavirus pandemic rattles energy investors, public utilities like San Diego’s emerge dead set on transitioning away from fossil fuels. One of the goals of San Diego Community Power was to provide the city with cleaner energy than San Diego Gas and Electric – and it’s trying to stamp out fossil fuel investments even from its first bank loan.
Over the past few months, its board of directors composed of local elected leaders struck deals with energy consultants and a California bank to secure its first line of credit. Big decisions are on the horizon, like who will take up the saber as CEO. That person will lead negotiations with SDG&E over things like data-sharing and purchasing energy.
“San Diego Community Power formed because it’s accountable to the people, not to shareholders,” said Jim Mosca, an Encinitas councilman, the board’s chair and also formerly SDG&E’s public affairs manager from 2015 to 2018.
Mosca said his experience at SDG&E means he has an extensive background in energy. He said he helped kick off some meetings between the public utility and SDG&E but does not anticipate being at the negotiation table going forward.
“It’s a partnership,” Mosca said of the relationship with SDG&E, a private utility that’s been in the business since 1881. “Interests that are not always going to be aligned.”
For example, Mosca said the power of a government-run utility means cities can demand more renewable energy quickly, and roll out micro grids, like solar panels on homes. The money the utility makes would be “invested in the community,” he said.
The new agency upends the monopoly over the local energy market that’s long been held by SDG&E. When it came to what kind of energy the city and residents used and how it moved or was stored – SDG&E called all the shots.
Now, SDG&E will only call about half the shots. It still owns the power lines, but the city can decide what kind of power runs along them. Management of customer accounts is expected to start automatically moving under public utility control come 2021.
The city hopes once it’s in control, it can provide more renewable energy to local residents, while still charging them less money to keep the lights on.
This movement gained steam in 2018 when former Gov. Jerry Brown set California on a path toward running 100 percent renewable by 2045. San Diego’s goal is more ambitious, aiming to reach 100 percent renewable energy a whole decade earlier. One of the main ways it gets there is requiring all electricity sold within city limits to come from renewable sources.
That will prove to be difficult because San Diego’s current energy diet (and, really, the whole of California) relies heavily on natural gas.
SDG&E reported 29 percent of its energy came from natural gas in 2018, according to its power source disclosure, a filing required by the California Energy Commission that serves as a kind of nutrition label for power providers. Another 27 percent comes from “unspecified sources,” ones where the electricity is not traceable to any specific generating plant because it’s traded over the open market. Another 21 percent comes from wind, and 20 percent from solar.
Pacific Gas and Electric’s power content, by comparison, showed 15 percent of the Northern California private utility’s energy came from natural gas in 2018. Another 34 percent came from greenhouse gas-free nuclear energy and 13 percent from hydroelectric power.
Natural gas, while it produces about half as much carbon dioxide (a greenhouse gas that causes global warming) as coal, is not a renewable resource. San Francisco, for instance, banned natural gas in all new city buildings earlier this year and is planning to ban it in all new construction. Natural gas may be losing ground with energy investors. As one corporate social responsibility group put it in a new report, investments in new natural gas infrastructure like pipelines and power plants is “incompatible” with long-term shareholder value.
In September, the San Diego City Council agreed to buy its own energy along with La Mesa, Chula Vista, Encinitas and Imperial Beach under a community choice aggregation authority dubbed San Diego Community Power. Its goal is to eventually provide power without burning fossil fuels and charge affordable rates, hopefully lower than SDG&E.
A business plan published in 2018 gave some insight. It attempted to project how San Diego might fare if it tried to be a public utility on its own. Consultants estimated at the time that a San Diego-solo public utility could offer rates about 5 percent lower than SDG&E and make an estimated $110 million per year, eventually paying off all the bills it generated. Another study, published in 2017, predicted rates could be 11 percent less than SDG&E within the next decade.
San Diego Community Power’s latest numbers come from its December 2019 implementation plan. The goal is to supply 50 to 60 percent renewable energy at a 2 percent to 4 percent discount off SDG&E prices, Mosca, the board chair, said.
San Diego Community Power’s finance committee met for the first time on April 17 with bank and energy consultant representatives to go over the dollars and cents of how this will all pan out. It elected Bill Baber, vice mayor of La Mesa, as chair.
“We have to show we’re at a lower rate than SDG&E. That’s what we promised people, that at least in the early days, we have to show we’re more efficient,” Baber said during a presentation of different potential financial scenarios.
According to new estimates from consultants hired by San Diego Community Power, the public utility could offer electricity rates that are 4 percent lower than SDG&E starting in 2021 (the target date for the launch).
The utility could be in the black to the tune of $139 million by 2025. That estimate, however, is based on current energy prices, which – as market disruptions from COVID-19 showed – can change rapidly.
The biggest expense for the utility, and its main purpose, is purchasing the power supply. It’s predicted that by 2025, the utility will be spending upward of $474 million to buy power, or about 94 percent of its budget.
Before San Diego can begin to think about stepping into the energy market, they must hire some staff.
River City Bank, based in Sacramento, agreed to approve a $35 million credit line to get the utility up and running. But the bank wanted some collateral. Rather than asking cities for money during a global pandemic that has jolted city budgets, a local investor lent the $5 million to help the utility secure its bank loan. The investor is Scott Borden, who owns Emerald Blue, which is a limited liability company that invests in clean energy and sustainability initiatives. His investment will sit as security and gain interest until the utility pays him back. (Borden’s company did not respond to a request for comment.)
The public utility considered larger banks like JPMorgan or Barclays but numerous officials said they wanted a smaller bank that worked with over a dozen other government-run utilities in California, the largest being the Clean Power Alliance out of Los Angeles. San Diego will be the second or third largest in terms of how much power it provides, said Rosa Cucicea, the bank’s vice president and clean energy division manager, during the finance meeting.
Mark West, an Imperial Beach councilman and the other finance committee member, said he specifically asked the bank to divest in any fossil fuels before moving forward on the credit line. The city asked each bank to disclose information about fossil fuel investment activities as part of the bidding process.
“It’s just (shows) a commitment to investments that are in green energy and not in the fossil fuel economy,” West said.
Cucicea said the bank included in its bid response that it still held a $5 million bond with Chevron Corporation, which represents “less than 1 percent of our investment portfolio.”
“If this bond is an issue, we can sell it,” Cucicea said.
Cody Hooven, the city of San Diego’s sustainability director, said that’s still “vastly better than the other banks that responded that heavily invest in fossil fuels.”
JPMorgan, one of the banks San Diego Community Power considered, announced in February that it would end fossil fuel loans for Arctic oil drilling and phase out loans for coal mining, The Guardian reported. It has provided $75 billion in financial support to expand shale fracking and other projects since countries agreed to drawdown greenhouse gases under the Paris Climate Agreement in 2016.
San Diego Community Power also hired consultants from Pacific Energy Advisors, an approximately $1.5 million contract over a three-year period. They will take data from SDG&E on how much energy the region requires, go out into the energy market and build a portfolio that fits the board’s demands. They also have the added task of balancing San Diego Community Power’s desires against California’s knotty web of regulations.
And they get the job of translating both energy market lingo and wonky regulatory acronyms to elected leaders.
“It’s a really big undertaking. You’re having a breadth of experience from financing to energy markets and everything in between … and trying to translate all that … in plain English so (the community) will understand,” said Hooven.
Finally, San Diego Community Power is looking for its CEO.
As of April 24, the city received 30 applications, Mosca confirmed. How much this person is paid and whether the interview process and candidate list will be public is unclear. So far, San Diego Community Power documents indicate the deliberations are held in closed session.
Mosca said employment matters are generally confidential. That means the community likely won’t know who will lead the utility until the board has decided to hire the person in open session.
The public has another avenue to weigh in on the development of the utility via the Community Advisory Committee established last week. Two members from the five participating communities can apply to be on the board or nominated by directors. This round’s selections are near complete save two selections from Chula Vista, Mosca confirmed.
“When we’re talking about purchasing energy, we want it to be in sync with what the community wants,” Mosca said.
Disclosure: Mitch Mitchell, SDG&E’s vice president of state governmental affairs and external affairs, sits on Voice of San Diego’s board of directors.