Upstart renewable energy agency Orange County Power Authority (OCPA) is preparing to lock its member cities into hundreds of millions of dollars of liability.
As a Community Choice Energy (CCE) agency, it functions by inserting itself into the electricity business by taking over Southern California Edison’s (SCE’s) electricity procurement.
To date OCPA has been limited by partial information leading to ill-informed decisions, a result of unwittingly putting itself at the mercy of a collective group of consultants, lawyers and service providers who operate as a caravan behind nearly every CCE up and down California, while collecting handsome fees from the towns and cities who jump on the CCE train, misled into believing they are helping the planet.
This process, which puts the communities at risk, is predominantly dependent on volatile out-of-state clean energy resources while its member cities assume hundreds of millions of dollars of liability and eminent domain exposure.
Energy from newly constructed in-state solar facilities by better-capitalized CCEs constitutes only a few percent of their energy deliveries. Because all of OCPA’s power comes from existing sources, there is no net reduction in global emissions. OCPA may claim it is helping the planet, but it is merely involved in “resource shuffling,” taking someone else’s previously claimed carbon reduction by displacing that reseller at the clean energy supply trough.
Shielding OCPA leadership from the truth does nothing to help cities make informed decisions, though it does help to assure on-going incomes for the program’s experts. Those monies are derived by successfully guiding another CCE through business launch and post-launch operations, as the community’s local funds are exported from California to a fraternity of energy wholesalers, among them a European oil giant that gamed California’s energy market during the Enron debacle.
Stacked Deck for High CarbonThe agency’s new CEO, Brian Probolsky, claims he will transition OCPA to in-house personnel and away from consultants who might otherwise shape the agency into their own image.
Curtailment and Batteries—Clean Energy’s Achilles’ HeelCalifornia’s electric grid is composed of the transmission wires that span throughout the state. California’s grid operator, CAISO, works to keep the electric supply in balance with electric demand. When too much power arrives at once—when the grid is out of balance—CAISO instructs responsible generating facilities to reduce production or shut off in a process known as “curtailment.”
Curtailment is electricity’s version of rush hour traffic and typically occurs during solar’s peak production, throughout afternoon hours. Arrival of intermittent wind power makes that bad situation worse.
Curtailment’s impact on a CCE’s economics and risk are significant. OCPA’s consultants did the fledgling agency no favors by ignoring the issue in their feasibility study—city councils lacked a complete picture of the market when they were voting to join OCPA. “Curtailment” is an obscenity to CCEs’ caravan of salespeople because it undermines the prospects of closing another CCE deal.
New interstate transmission lines such as the Southern Nevada Intertie Project and the Gateway Expansion will do little to solve the problem, akin to constructing out-of-state freeways to solve California’s rush-hour traffic.
Batteries are cited to be the cure-all for wind and solar, storing intermittent energy if the grid is unable to accept it, but problems persist.
Skewed Time References to 'Successful CCEs'Dirty power is hidden in many areas of the power industry. In addition to using (pdf) the industry’s readily available “unspecified power” (dirty or brown power) to make up for wind and solar intermittency, OCPA is queued up to become one of California’s biggest carbon emitters through a practice employed by CCE consultants. That practice is generically known as green-washing (pdf), where dirty power is delivered under the guise of “clean energy.”
California recently legislated part of that gaming out of existence, but not before older CCEs such as MCE banked millions of dollars through years of exploitation.
- Western Riverside Council of Governments (WRCOG)
- Los Angeles & Ventura County
Rather than acknowledge the risk of entering the electricity procurement business where volatility and razor-thin profit margins are the norm, CPA leadership played the victim card by blaming SCE for its own shortcomings and mismanagement. (A handful of cities subsequently rejected CPA’s membership overtures after determining CPA under-represented Termination liability and eminent domain powers, while also loading into its energy portfolio another green-washing type instrument, PCC 2.)
- San Diego County
- Riverside County
- CCE de-certifications (Baldwin Park, Montebello, Santa Paula, Palmdale, Butte County)
What Can Cities Do at This Late Juncture?Cities should consider withdrawing from OCPA before the initial opt out phase expires—incurring little or zero cost (Irvine, as the only city lending money to OCPA, would likely lose its funds)—before power purchase agreements lock those cities into OCPA.
If cities delay their departure, their general funds appear to be at risk. OCPA’s Joint Powers Agreement document states OCPA “intends, to the maximum extent possible,” to collect termination costs from a departing city’s ratepayers, however the document’s subsequent and critical language is unclear.
OCPA is also less-than-straightforward with the community it serves.
Indeed, OCPA will use SCE to obscure its illicit “benchmarking”—continually raising Basic Choice’s price (as it plans to do in April) so it remains equal to regular price increases for SCE’s competing product.
Through benchmarking, OCPA squeezes maximum revenue from homeowners and businesses rather than serving all ratepayers in the local community as a lowest-cost partner.
Matters worsen when scrutinizing price premiums for OCPA’s renewable energy volumes in its upper echelon products such as its 100 percent renewable product, recently selected by Buena Park.
The initial excitement of municipal membership in OCPA will reveal itself to be a growing liability as cities discover that departing ratepayers’ financial obligations—after the initial opt out period expires—are added to the ledger of the respective OCPA member city in which those (former) ratepayers are located. Loss leader pricing will not stave the eventual departures.
Large departure volumes can severely impact a city’s finances.
Curiously, OCPA’s consultants’ recent recommendations contrast with the independent review prepared for Huntington Beach that expressed concerns about underestimated front-end, early year, and on-going costs for the program.
Save for its bench of enthusiastic and insulated consultants, OCPA member cities need to give the tires on this venture more than a perfunctory kick. The agency has yet to launch and critical elements are already aligning in the wrong direction.
Grab your toy steering wheel because this is going to be a rough ride.