In a dramatic sign of California’s changing energy market, San Diego Gas & Electric wants to stop buying and selling electricity. In recent days, the company has asked lawmakers to introduce legislation that would let SDG&E reduce its role – while also pushing the state to enter the energy market in a big way. The company’s vision could eventually require the state to buy out its long-term power contracts and possibly pay the company for several natural gas-fired power plants it owns.
SDG&E is pitching this idea as the company prepares to lose about half of its power customers within the next few years. Last month, San Diego Mayor Kevin Faulconer said he wants to form a “community choice energy” agency, known as a CCE, to buy and sell power on behalf of the city’s 1.4 million people. Other smaller cities across the county are likely to join that effort, creating an electricity buyer’s club that will compete with SDG&E and leave the company with more power than it can sell.
“We think it makes better sense for SDG&E to eventually move out of the commodity role,” said Kendall Helm, the company’s vice president of energy supply. “But it’s important to always provide clean, safe and reliable delivery to all customers in our service territory.” That may sound like it’s bad for business, but it may be more of an opportunity. A well-run utility can make a steady profit from delivering power. SDG&E makes most of its money that way, which is why its bottom line won’t be at much at risk if it stops selling power. The company already gets guaranteed revenue from the sprawling system of power lines and cables it’s built over the last century to each home and business in the region. With this latest move, the company is looking to shed the risk it now faces trying to buy power for a customer base that is looking to jump ship.
“Signing contracts that are 10 and 20 years in length while the cities are discussing the possibility of joining together to buy their energy from a CCE provider will be tricky to say the least and thus we are looking at what the best options are for the near future related to our efforts,” SDG&E’s vice president for government affairs, Mitch Mitchell, said in a Nov. 14 letter to state Sen. Ben Hueso.
For years, most California power companies did it all – they owned both the power generation and the lines that delivered it to customers. Now, following years of deregulation and changes in the industry, the state’s three big energy utilities – Southern California Edison, Pacific Gas & Electric and SDG&E – no longer own all of the power they deliver. Much of their power comes from long-term contracts they signed with other companies. Even that market is eroding as CCEs enter the energy market. Then there is the fact that, with the separation of generation and delivery, the big utilities cannot make money from customers on the power they buy and then resell.
In the future, SDG&E could look more like a company which only delivers electricity. The question is how to get there.
A draft bill, which Hueso’s office provided to Voice of San Diego, shows what SDG&E is asking lawmakers to consider. The company urges the state to create a way for the company to sell off its long-term power contracts to a “state-level electrical procurement entity.” The first step would be a state-level task force to sort through all the issues involved, which would be many.
Matthew Freedman, a staff attorney for The Utility Reform Network, said there are already discussions about the state stepping in to help develop renewable power resources. But those discussions are about developing new power – like geothermal projects in Imperial County – not paying companies for existing contracts. “That is the legitimate part of what SDG&E is teeing up, but I don’t think they are the right messenger,” he said. “Their motives are not pure on this, and what they have put on the table now is more of a manifesto than an actual proposal.”
For one thing, it’s not clear what state agency would step up to pay for all of this. There’s also the matter of the power plants SDG&E does own – four plants that generate power by burning natural gas. The draft bill would make sure the company is “fully compensated” for those plants in certain scenarios. This could put the state in the awkward position of paying for fossil fuel-fired power even though California lawmakers this year set a goal of having all electricity sold in the state come from renewable resources by 2045.
SDG&E said it’s already taking steps to minimize the number of gas-fired power plants it owns. For a while now, it’s been expecting that it would be forced to buy another gas-fired plant for $280 million. The forced sale is part of a bizarre deal involving former California Public Utilities Commission President Michael Peevey. Helm said SDG&E has worked out a deal that would not require SDG&E to buy the plant.
COMMENTARY ADDED BY CCE NORTH COASTAL: It appears that the momentum towards CCAs is much more powerful than we dared hope. The path forward now has new issues to be navigated. Giving attention to our representatives and reaching out to them with public comment will be ever more important. It now looks like not IF CCAs will be the the way electricity is bought and sold in our state, but the question will be HOW SDG&E's past, deep commitment to fossil fuels will be mitigated financially.
Exciting! But stay ever vigilant!