Tag Archives: California

Dunning gets it wrong again on VCE

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Valley Clean Energy Alliance (VCE) was in the Davis opinion columns this weekend again. First, Bob Dunning wrote another column in the Davis Enterprise that mischaracterizes the switch to VCE from PG&E as “mandated” and implies that local government didn’t trust Davis citizens to make the right choice. Then, David Greenwald wrote a column in the Davis Vanguard on how Dunning had ignored the authorization of the development and formation of VCE and is late to the game.

In both cases, the distinction between the choice to form VCE made by city councils and the Board of Supervisors after substantial study  is not distinguished from the choice that electricity ratepayers now have as to which entity will serve them. Previously, Yolo County ratepapers had no choice as to who should serve them–it took the formation of VCE to create that choice. If Dunning has a problem with that even offering that choice in the first place, then that’s a much more fundamental problem. But he is not being so transparent in his opposition, with is either disingenuous or ignorant.

I wrote the following email to Bob Dunning (I had an earlier letter to the editor already published in the Enterprise, that I also posted on this blog and the Davis Vanguard.)

You complain that somehow you’ve been “mandated” to sign up with Valley Clean Energy Authority. Yet you fail to ask the question “why was I mandated to sign up with PG&E all of those years?” Why does PG&E get a free pass from your scrutiny?

Instead now, you actually have a choice. We trust that you will make the right choice, whereas before you had NO choice. And you are not “mandated” to join VCE. You can act to switch to PG&E if you so choose. What has changed is the starting point of your choice. The default is no longer PG&E—it’s VCE. There’s nothing wrong with changing the default choice, but we have to start with a default since everyone wants to continue to receive electricity. (The other option is like they did with long distance service in the late 1980s with random assignment as the starting point, but that seems too much bother.)

 Send me your answers in your next column.

As to the Vanguard, I posted:

I think your column misses the fundamental point–contrary to everything that Dunning writes, we DO have a choice–it’s just that the starting point (default) isn’t what he wants. He prefers that the big corporations get the favored pole position.

 

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One CEQA reform

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Yet another housing development in Davis is being threatened with a lawsuit under CEQA. Almost every project in town has been sued by a small cadre of citizens, with Susan Rainier the most recent stalking horse. This group was first encouraged by a suit in the 1990s that was settled for more than $100,000 that went to two individuals. (Part of those funds went to start the “Flatlander.”) That pattern has been the modus operandi ever since.

The problem is that these individuals and organizations have rarely been meaningful participants in the planning and permitting process for these projects. A valuable CEQA reform would be to require that any litigant to participate in a meaningful way in the preparation of the EIR, and that the litigant include any document or discussion in the suit that is filed. The intent of litigation in CEQA was to act on a check on failing to address any concerns raised during the deliberative process–let’s make that the case.

The legitimate environmental concerns are to be addressed during the deliberative process. The potential litigants need to develop a record during the deliberative process that fully raises their concerns. A suit should be limited to the issues raised during that process, and the required evidence clearly specified during the process. The litigants can then more fully develop counter evidence in a suit if that is the final outcome.

Another bad legislative idea: Pushing RPS purchase

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The California Legislature is considering a bill (AB 893) that would require the state’s regulated utilities (including CCAs as well as investor-owned) to buy at least 4,250 megawatts of renewables before federal tax credits expire in 2022.

Unfortunately, this will not create the cost savings that seem so obvious. This argument was made by the renewable energy plant owners in the Diablo Canyon Power Plant retirement case (A.16-08-006) and rejected by the CPUC in its decision. While the tax credits lower current costs, these are more than offset by waiting for technology costs to fall even further, as shown by the solar power forecast above. Combined with the time value of money (discounting), the value of waiting far outweighs prematurely buying renewables.

The legislature already passed a bill (SB 1090) that requires the CPUC to ensure that GHG emissions will not rise when Diablo Canyon retires in 2024 and 2025 when approving integrated resource plans. (Whether the governor signs this overly directive law is another question.) And SB 100 requires reaching 100% carbon free by 2045. A study just released by the Energy Institute at Haas indicates that renewables to date have depressed energy market prices, discouraging further investment. And the CAISO is “managing oversupply” created by the current renewable generation.

And there’s a further problem–with a large number of customers moving from the IOUs to CCAs across all three utilities, the question is “who should be responsible for buying this power?” The CCAs will have their own preferences (often locally and community-scale) that will conflict with any choices made by the IOUs. The CCAs are already saddled with poor procurement and portfolio management decisions by the IOUs through exit fees. (PG&E has an embedded risk premium of $33 per megawatt-hour in its RPS portfolio costs.) Why would we want the IOUs to continue to mismanage our power resources?

One bad legislative idea: Bail out PG&E

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The California Legislature is still struggling with whether and how it should protect PG&E from a $17 billion liability from the Sonoma wildfires that could push the utility into bankruptcy. The latest proposal would have the CPUC conduct a “stress test” on PG&E’s finances if it faced a large liability, and then PG&E could raise rates sufficiently to cover the difference between the total liability and exposure deemed sufficient to maintain financial solvency. We don’t have enough details to understand how well the stress threshold is defined and how it would differ from the current cost of capital evaluations, but this is a bad idea regardless.

Firms need the threat of bankruptcy to perform efficiently and effectively. We’ve already seen how PG&E manages and performs sloppily, whether its maintaining vegetation (which has been a problem since the early 1990s), tracking its pipeline maintenance (which led to the San Bruno accident), or managing risk in its renewable power portfolio (which has added a $33 per megawatt-hour premium to its cost.) Clearly CPUC oversight alone is not doing the job. Outside litigation may be the only way to get PG&E’s attention, especially if it creates an existential threat.

Policymakers have taken the wrong lesson from PG&E’s previous bankruptcy, filed in 2001 during the California energy crisis. The issue there that lead to the final resolution was whether PG&E was required to provide power to its customers at whatever cost. This situation is not about PG&E’s obligations but rather about its management practices, and a bankruptcy court is much less likely to require a cost pass through.

Instead, the state could simply step in buy PG&E for $1 if the utility declares bankruptcy (an option that Governor Gray Davis was too much of a coward to consider in March 2001.) The state could then directly manage the utility, or better yet, parse it  down to eight or ten smaller utilities. (Two studies in PG&E’s 1999 General Rate Case, and the subsequent decision, found that the most efficient utility size is about 500,000 customers. PG&E now has over four million.) Customers would find the utilities more accessible and responsive, and by creating municipal utilities, rates could be much lower with cheaper financing cost. It’s time to rethink where we should head.

Bob Dunning gets choice on VCEA wrong

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Electricity customers in Davis and Yolo County are in the midst of choosing between the current incumbent electricity utility Pacific Gas & Electric (PG&E) and the new community choice aggregator (CCA) Valley Clean Energy Alliance (VCE). VCE is a joint powers authority (JPA) of the governments of the Yolo County, and the Cities of Davis and Woodland. (The Cities of Winters and West Sacramento have expressed interest in joining VCE as well.) By state law, customers are initially defaulted to the CCA at the outset before being given multiple chances over a six month period to choose to stay with the incumbent investor-owned utility–PG&E in this case.

Bob Dunning in his Davis Enterprise column August 8 confuses a lack of choice with just changing the starting point of the choice. Regardless of whether VCE or PG&E is the default provider, local customers still have exactly the same choice. But by having VCE start as the default provider, we level the playing field with the long-time giant monopoly utility, PG&E. (And customers can return to PG&E after 12 months if they are dissatisfied.) Why should we continue to give the big guy a continued advantage at the outset?

PG&E has all sorts of shareholder money to spend on improving its image and retaining customers. The utility’s biggest problem is that it is spending an additional 3.3 cents per kilowatt-hour to mismanage risk in its portfolio based on calculations I made in the power cost indifference adjustment (PCIA) rulemaking proceedings. Why stay with a company that has such a poor management record?

Not so bad in our estimate…

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The University of California ARE Update published a short study that found that the drought emergency regulations adopted by the State Water Resources Control Board were only 18% more costly than the most “efficient” standards. In May 2015, the State Water Resources Control Board adopted Resolution No. 2015-0032 which imposed restrictions to reduce water use by local agencies by 4 to 36 percent depending on their circumstances. Northern California agencies were to reduce usage by 16.2 percent on average, while Southern California utilities were to reduce by 22.5 percent. In the end, Northern California utilities far exceeded their target with a 23.3 percent reduction, and Southern California’s just missed theirs with an average of 21.4 percent. M.Cubed conducted the economic study of the regulations, and found that the insurance benefits were likely substantial enough to justify the costs.

The real headline of the study should be “Drought regulations remarkably efficient!” Given that the regulations were developed in just a few months and that they were done on a prospective basis with uncertainties and unknowns (e.g., the price elasticities referenced in the study), missing the mark by only 18% is truly remarkable. In comparison, the California Air Resources Board may have missed the mark by more than 100% in setting out its AB 32 Greenhouse Gas Reduction Scoping Plan in 2008 by relying too heavily on mandated measures such as renewables generation and certain types of energy efficiencies instead of more effective market based measures.

Nevertheless, the study appears to the make mistake of making the classic economist’s joke “sure it works in practice, but does it work in theory?” Consumers are chastised for behavior that doesn’t fit the fitted values for price elasticities. The study compares the mandated and achieved reductions and notes that achieved reductions were more even across agencies than the mandates. Agencies with lower mandates achieved higher reductions, and those with higher mandates fell short on achievements. Instead of questioning the original price elasticity estimates–and such estimates commonly have a wide range and are often situation specific–the report just plows ahead as though these theoretical results should have driven human behavior.

The more interesting question the researchers should have asked given the consistent patterns in achieved versus mandated reductions is what factors caused these agencies to diverge from the mandates. Geography is clearly only part of the reason. It also appears that there is not as much “demand hardening” at the low end of use, and a higher premium put on water uses at the upper end. These factors have implications for how we should modify our price elasticity estimates.

The 20-year cycle in the electricity world

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The electricity industry in California seems to face a new world about every 20 years.

  • In 1960, California was in a boom of building fossil-fueled power plants to supplement the hydropower that had been a prime motive source.
  • In 1980, the state was shifting focus from rapid growth and large central generation stations to increased energy efficiency and bringing in third-party power developers.
  • That set in motion the next wave of change two decades later. Slowing demand plus exorbitant power contract prices lead to restructuring with substantial divestiture of the utilities’ role in generating power. Unfortunately, that effort ended up half-baked due to several obvious flaws, but out of the wreckage emerged a shift to third-party renewable projects. However, the state still didn’t learn its lesson about how to set appropriate contract prices, and again rates skyrocketed.
  • This has now lead to yet another wave, with two paths. The first is the rapid emergence of distributed energy resources such at solar rooftops and garage batteries, and development of complementary technologies in electric vehicles and building electrification. The second is devolution of power resource acquisition to local entities (CCAs).