How stay-at-home orders derailed energy savings for Solana Beach
Its CCA is poised to eliminate rate discount compared to SDG&E after COVID-19 restrictions put finances in a squeeze
Last month, the Solana Beach community choice energy program reduced the discount it offers customers compared to San Diego Gas & Electric from 3 percent to 1 percent to shore up its bottom line.
Now, board members are on the verge of eliminating the discount altogether because of the financial effects the COVID-19 pandemic are projected to have on the standalone community choice aggregation, or CCA, program that serves about 7,000 Solana Beach customers.
In operation since June 2018, the Solana Energy Alliance is the first CCA formed in San Diego County.
Like the roughly 20 CCAs that have sprung up across California in recent years, the Solana Energy Alliance was formed to offer an alternative to traditional utilities such as SDG&E when it comes to purchasing cleaner sources of energy for electricity customers.
The alliance’s board is comprised of the members of the Solana Beach City Council. At the May 27 meeting, a report from city staff said the ripple effects from the pandemic “necessitates Council action to maintain the financial viability” of the Solana Beach Energy Alliance.
The outbreak has markedly reduced overall energy usage by commercial and industrial users around the state as stores, businesses and factories have curtailed or even shut down their operations.
Solana Beach is not much affected by industrial energy users but according to estimates staff cited by Morgan Stanley Research, commercial load in California is expected to fall 15 percent in the second quarter, 11.9 percent in the third quarter and 9.1 percent in the fourth.
On the other hand, residential energy use has increased as more people work from home. But the uptick in residential usage is not large enough to make up for the loss in load caused by commercial and industrial customers. Morgan Stanley estimated an 8 percent overall drop in the second quarter and a 2.4 percent decline for all of 2020.
Granted, the estimates are for the entire state but the staff report said “it still clearly shows the impacts will be drastic (for the Solana Energy Alliance) and changes must be made to help offset these losses in revenue.”
Emergency customer protections put in place by SDG&E during the outset of the pandemic may hit the CCA’s bottom line, too. The protections include not disconnecting electricity on customers who have not paid their monthly bills, waivers of deposits and late fees for residential customers and making it easier for customers to qualify for the reduced-rate CARE program.
All those factors lead to a projection that the Solana Energy Alliance’s minimum cash balance will dip into the red next year unless changes are made.
The estimated shortfall ranged from $25,355 on the low end to $161,953 on the high end.
City council members were presented a host of options to put the balance back into positive territory.
After some debate, the four councilors and Mayor Jewel Edson directed staff to move forward on a plan to change the Solana Energy Alliance’s rate in the default plan it gives customers from 1 percent cheaper than SDG&E’s generation rate to the same cost as the utility’s.
In additional cost-saving measure, the plan would also sell some of the renewable energy credits in the CCA’s portfolio and swap them out for credits in another category.
Staff estimated the changes would boost the minimum cash balance to $19,291 in 2021 and keep the CCA’s portfolio mix of 50 percent renewable/75 percent carbon-free sources intact.
The city council will vote on the proposal on June 24. If approved, the rate change will be made retroactive to June 1.
“Based on the conservative projections that were provided to Council, SEA should be able to weather this,” Edson said in an email. “Like many in these uncertain times, I wish I had a crystal ball. COVID-19 and it’s impacts are anything but predictable.”
Earlier changes that had to be made
The financial adjustments due to the pandemic come on the heels of board members making earlier tweaks last month because of a combination of factors, the biggest being an increase in the exit fees that all CCAs in California must pass on to their customers each month.
The exit fees offset the costs a utility in a given region has spent over the years on things like building power plants and developing renewable energy projects — all done with the approval or direction of the California Public Utilities Commission. In a decision CCAs complained about, the commission in late 2018 adjusted the exit fees to make them higher.
The Solana Energy Alliance’s bottom line was also hurt by sharply higher delivery charges in recent years by SDG&E. Even though CCAs are separate from traditional utilities, they are still subject to the transportation and distribution costs in a power company’s service territory and those costs are shared by CCA customers.
To avoid a negative cash balance, the Solana Beach city council voted on May 13 to reduce the discount its default energy program offered customers from 3 percent lower than SDG&E to 1 percent.
“Obviously, we need to make a shift,” council member David Zito said at the time.
Next year, the Solana Energy Alliance will merge with the cities of Del Mar and Carlsbad to form a three-city CCA called the Clean Energy Alliance that will serve about 58,000 customers, starting in May 2021. It plans to offer rates about 2 percent lower than SDG&E. The larger CCA figures to give Solana Beach more insulation from financial fluctuations than it is currently exposed to a standalone entity.
“The larger size (of the Clean Energy Alliance) will ensure larger reserves which will be invested in worthy programs such as local distributed energy projects, supporting low income customers, and batter storage,"council member Kristi Becker said in an email.
At roughly the same time the Clean Energy Alliance begins operations next year, another — significantly larger — CCA will launch in county. San Diego Community Power will make power supply purchases for an estimated 920,000 customers in the cities of San Diego, Chula Vista, La Mesa, Imperial Beach and Encinitas.
But for critics of CCAs like Julie Meier Wright, the adjustments by Solana Beach raise warning flags about the long-term financial strength of community choice energy programs in general.
“The real issue I think for San Diego County and the various entities that are pursuing CCAs is that they have much bigger fiscal issues to deal with than going into a completely new business where they really don’t have any expertise,” said Meier Wright, retired CEO of the San Diego Economic Development Corporation.
“To me, it’s a bonanza for consultants but it doesn’t really do much for the ratepayer ... And frankly, I think the fact that they (Solana Beach) have reduced their price advantage twice says everything you need to know.”
But Solana Beach deputy mayor Judy Hegenauer said the city’s top priority is to provide cleaner sources of energy in order achieve its local Climate Action Plan goals that include reducing greenhouse gas emissions by 69,608 metric tons by 2035.
“When reviewing all the many areas that contributed to our carbon footprint back a number of years ago we also studied all the possible mitigations that we could employ to reduce those carbon emissions,” Hegenauer said in an email. “Far and away the most impactful mitigation (by the numbers) was the creation and implementation of a CCA energy program. Providing clean energy is still our primary goal. If we can do that at a reduced rate for our customers all the better.”
-- Rob Nikolewski is a reporter for The San Diego Union-Tribune
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