CleanPowerSF: Political Correctness Trumps Energy Policy

In 2002, California enacted legislation authorizing municipalities to establish Community Choice Aggregation (CCA) programs. In September 2012, the San Francisco Board of Supervisors adopted “CleanPowerSF” to be the CCA program available for city residents. Its supporters describe CleanPowerSF as “a 100% renewable energy alternative.” Supervisor David Campos exalted that CleanPowerSF “will stimulate the local economy, create jobs and most importantly secure our independent, clean energy future.”

CleanPowerSF represents yet another Balkanizing, politically motivated misadventure in energy policy. The global complexities and challenging tradeoffs driving energy realities demand that energy policy be developed on a regional basis and respect the fundamentals of economics and physics. CleanPowerSF is premised on San Francisco being an “energy island,” political rhetoric, and exploitation of the unpopularity of the local utility, Pacific Gas and Electric Co. (PG&E).

Background

As part of its deregulation experiment, in 1998, California offered electric consumers a “direct access” option to select among energy providers. The local utility would remain the “wires company,” delivering the electricity, but consumers could choose an alternative commodity supplier. Direct access providers competed by promising better rates and preferable products (renewable and nuclear-free supply). In response to its energy crisis in 2001, California suspended the entering of any new direct access arrangements.

However, by the next year, the legislature decided that Californians should retain some opportunity to replace the local utility and be able to select from a more preferred supply portfolio. The resulting CCA program replicates direct access, but with the distinction that a municipal entity (in this case, CleanPowerSF) serves as an intermediary between the power provider and the customer. CCA can be categorized as “muni-light”—the city procures the electric commodity, but without ownership or operation of any transmission or distribution facilities.

Promised Benefits Are Illusory and Unachievable

CleanPowerSF will create jobs—the positions necessary to administer the program. It may also stimulate the local economy: Lawyers and consultants will thrive.

In other respects, Supervisor Campos’ vision for CleanPowerSF is illusory and destined to be an expensive failure. The promise of 100% renewable power is neither achievable nor necessary. Desired increases in the amount of intermittent wind and solar sources require some amount of natural gas generation to back up the system.

Moreover, any notion that CleanPowerSF will “secure” for San Francisco electric consumers “energy independence” is misguided. The “independence” CleanPowerSF offers is simply the ability to “say no” to PG&E’s portfolio. CleanPowerSF does not make San Francisco independent from the California grid; the city remains subject to blackouts caused by regional supply shortages, transmission outages, or any malfunction of PG&E’s distribution facilities. Local initiatives designed to achieve energy independence should better focus on rooftop solar installations and energy efficiency.

One possible attraction of CleanPowerSF is to enable customers, on an energy accounting basis, theoretically to bar PG&E from delivering nuclear power into their homes. But even if all of San Francisco opts for CleanPowerSF, PG&E will continue to maximize its nuclear generation and that nuclear power will flow over its wires and physically into San Francisco homes.

CleanPowerSF’s marketing will likely depict PG&E as an energy Neanderthal blocking greater renewable development. This thesis ignores utility economics: PG&E is financially indifferent whether it purchases wind or natural gas power; its economic interest is to increase ratebase by owning generation. Conversely, PG&E is agnostic whether increases in its ratebase reflect expenditures for solar or nuclear facilities.

Besides economics, resource availability, and physics, the inhibiting factors in the development of renewable resources in California are permitting and regulatory policies that extend development, increase costs, disqualify viable sites, and delay construction of necessary transmission lines. CleanPowerSF offers no solutions to these impediments. It is unlikely to purchase renewable power better at a lower cost than PG&E, and there is no basis to suggest it can develop renewable resources better than experienced and well-financed private entities. Moreover, California law already obligates PG&E to achieve 33% renewables, and Governor Jerry Brown would support an increase to 40%. The business case that CleanPowerSF will accelerate renewable development has not been made.

Real Costs Outweigh Psychic Benefits

The energy independence CleanPowerSF promises is not without cost. Appreciable amounts have already been incurred to create the program’s legal infrastructure. CleanPowerSF has been authorized almost $20 million to commence business; $6 million is to study options to produce solar power, generate local power, and deploy energy efficiency strategies. The logic that “local” studies will generate options more viable than comparable studies conducted by state, federal, and private entities can only be rationalized as local politics.

CleanPowerSF acknowledges its inability to decrease costs for customers. The price to participate in CleanPowerSF will be a monthly increase ranging between just under $10 and almost $80, depending on the customer’s consumption level.

This nation has sought to achieve energy independence since the first oil embargo. The lessons of the past half-century should be that political gimmicks—the proverbial “rearranging the deck chairs on the Titanic ”—do increase costs, but they advance neither energy reliability nor independence. CleanPowerSF may enable some San Franciscans to feel better, but it will not create meaningful “green jobs,” will not advance development of renewable power, and will not promote real energy independence.

Steven F. Greenwald (stevegreenwald@dwt.com) and Jeffrey P. Gray (jeffgray@dwt.com) are partners in Davis Wright Tremaine’s Energy Practice Group. Davis Wright Tremaine does not represent Pacific Gas and Electric Co.