Unpacking Orange County Power Authority’s Imminent Failure

Power lines in Fullerton, Calif., on Dec. 22, 2020. (John Fredricks/The Epoch Times)

Commentary

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.

OCPA’s board members are headed for a racetrack where they will spin toy steering wheels while OCPA’s caravan takes everyone for a ride.

Stacked Deck for High Carbon

The 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.

Ridding OCPA of its consultants may prove nearly impossible for the zero energy experience (pdf) political appointee who is keenly reliant upon experts brought aboard by the same internal powers that hired him.

Probolsky plus his new agency has a foretelling resonance. That combination parallels the experience of Marin Clean Energy CCE (MCE) when that newly formed agency hired its own zero energy experience CEO. Further, MCE’s CEO, a political hire (pdf) from Marin’s Community Development Agency, relied heavily upon the same consultants that OCPA is using.

MCE then got itself addicted to green-washing—to the bragging rights of faux clean energy and the associated financial windfalls of delivering low-cost dirty power to ratepayers as premium priced “clean energy.” MCE assumed its place as the CCE industry’s long-established patriarch and as CCEs’ biggest green-washing emitter of carbon, not a standard to which OCPA should aspire.

Curtailment and Batteries—Clean Energy’s Achilles’ Heel

California’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.

This CCE’s regulatory filing (pdf) discusses the issues around curtailment. Data from California’s grid operator, CAISO, shows (pdf) how curtailment is increasing at a steady rate. The issue promises to worsen with new legislation that requires electricity providers to dramatically ramp up their renewable energy (wind and solar) production, rendering OCPA’s next incremental megawatt-hour of wind and solar useless, relegating it to the caboose on a train that is not going anywhere.

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.

While OCPA’s consultants aggressively ushered the agency toward its business launch with optimistic projections and understated risks, battery fires and battery overheating, not to disregard battery’s limited hours of service, are the brush that will paint the newbie into a corner.

OCPA’s finances will come under duress if the agency pursues low-cost borrowing and prepayment bonds of its renewable energy contracts, and then discovers curtailment has raised its head. If OCPA fails to openly pre-disclose its curtailment risk to bond purchasers (not bury it in pages of boilerplate language), the agency’s savings will merely fund its litigation defense.

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.

Newer CCEs that launched based upon such “success” were misinformed on multiple levels, including the programs’ protected contradiction where consultants absorb zero-risk and maximum income while municipal jurisdictional members, whose existence allows consultants to thrive, assume all the risk and derive minimal income.

• Western Riverside Council of Governments (WRCOG)

Western Community Energy (WCE) declared bankruptcy two years after its CCE launched, leaving an estimated $960 million (pdf) of projected liability in its wake after sales personnel told (pdf) cities the CCE would save residents about 4 percent per month (about $2) on electricity bills.

WRCOG sought to extend employee agreements to its advisers, which, according to WRCOG emails, shielded consultants from (financial) liability.

• Los Angeles & Ventura County

OCPA is not insulated from the multi-million dollar losses (pdf) associated with Clean Power Alliance (previously known as Los Angeles Community Choice Energy), which loaded inexpensive PCC 3 (pdf) instruments into its program (as clean energy) after claiming to reject these instruments.

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.)

Curiously, the Business Plans for both Western Community Energy (previously known as Inland Choice Power before renaming itself) and Clean Power Alliance contained identical errors that indicate the author did not understand (pdf) the electricity market’s statutory requirements about which it was advising.

That consultant is now on OCPA’s consulting bench.

• San Diego County

Solana Beach ran into shortcomings with its CCE. The program was forced to raise prices and load inexpensive faux clean energy (PCC 3 and PCC 2) into its program before shutting down, then re-launching as Clean Energy Alliance.

Solana Beach’s feasibility study (Community Choice Aggregation Technical Analysis) was peer reviewed by a consultant now on OCPA’s consulting bench.

• Riverside County

Because of CCE viability concerns, Cathedral City maintained a no-liability membership in Desert Community Energy (DCE), where it opted not to execute electricity contracts with the CCE after concerns about the economy and energy markets.

DCE eventually experienced financial difficulties. This demand letter (pdf) from SCE for payment of delinquent invoices illuminates DCE’s financial condition, ending with concern about the CCE’s ability to serve its customers. Cathedral City dropped out of DCE seven months ago, ostensibly without incurring any charges.

• CCE de-certifications (Baldwin Park, Montebello, Santa Paula, Palmdale, Butte County)

These cities eagerly launched, or joined, CCE believing they could dramatically reduce carbon emissions while modestly reducing prices. Under the counsel and guidance of experts they failed to understand that much of the delivered energy was not clean or renewable, nor was it cost effective. Ultimately, these CCEs elected to decertify.

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.

City of Irvine, for example, is looking at termination charges (exit fees) of nearly $600 million (pdf) and it appears its general funds are in OCPA’s crosshairs. OCPA’s other members, Huntington Beach, Folsom, and Buena Park would incur approximately 55 percent, 35 percent, and 25 percent, respectively, of Irvine’s liability.

OCPA is also less-than-straightforward with the community it serves.

OCPA’s Huntington Beach representative, Mike Posey, sold the program to taxpayers based upon saving 5 percent to 9 percent on electricity bills. However, OCPA’s default product—Basic Choice—into which the bulk of consumers will be enrolled, is now “at parity” with SCE’s price.

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 numbers do not jibe. Much of the agency’s delivered clean energy is little more than inexpensive system power (pdf).

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.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.