California Wineries Don’t Need Pricey ‘Green’ Power (1.6 or 7.1 cent/kWh?)

By Wayne Lusvardi -- April 23, 2014

Bill Roberts, economist for the Bay Area Economic Forum, warned in a 2007 study on the municipalization of local power purchases and generation in California:

If Pacific Gas and Electric (PG&E) operates any retained generation and Sonoma Clean Power purchases 100% of its power supply in the competitive market, Sonoma cannot avoid higher average electricity rates than PG&E unless it subsidizes rates (or someone wins the gamble of ‘beating the market’). [page 13, paraphrased for clarity].

Sonoma Clean Power (SCP) officials and advocates were whooping it up with recent news that some 94 percent of its electricity customers had “chosen” to drop service from investor-owned utility Pacific Gas and Electric. Instead electricity customers would be transferred to its new municipal electric utility beginning in May (see Energy News Data, March 28). But Sonoma County electric ratepayers may want to think a second time about automatically “opting in” to the program.

Background

Sonoma County is located north of San Francisco Bay and enjoys frontage along the Pacific Ocean. Sonoma County is considered part of California’s wine country including Napa and Mendocino Counties.

Sonoma Clean Power is a new municipal electric utility created under the Community Choice Aggregation (CCA) law in California. This allows cities to disconnect from having to buy power from PG&E and purchase their own power, or build their own new clean power plants. All customers are automatically transferred to the new city owned-utility unless they want to choose to opt out. PG&E would continue to handle billings, maintenance, and transmission and distribution of electricity.

The justification for creating Sonoma Clean Power is that it can deliver cheaper, cleaner power to customers than PG&E.However, PG&E can supply electricity to Sonoma County mainly from the Mt. Diablo Nuclear Power Plant and hydroelectric power plants both of which deliver very cheap and totally clean power already. A Fukushima nuclear plant failure is nearly impossible at Mt. Diablo due to its design.

Sonoma Clean Power vs. 1.6 cent/kWh Clean Nuclear Power

Nuclear power from the Mt. Diablo plant is produced at a wholesale price of 1.6 cents per kilowatt-hour, an unbeatably low price. By comparison, three cities in Southern California just bought solar power from Silverado Solar for 7.1 cents per kilowatt-hour, excluding the expensive transmission costs associated with green power.

The San Francisco North Bay Business Journal estimated that Sonoma Clean Power could possibly produce electricity at about the same rate as PG&E but it would include a higher percentage of clean power, which it arguably doesn’t need.

Sonoma Clean Power High Estimate: $0.094 per kWh (33% clean power by 2020)
Sonoma Clean Power Low Estimate: $0.092 per kWh (33% clean power by 2020)
PG&E Clean Power: $0.096 per kWh (20% clean power as of 2013)

Source: North Bay Business Journal, April 15, 2013

No Power Plants Will Be Built in Sonoma Basin Smog Trap

Pricey, clean power is often justified in California where the topography creates air basins that trap smog.  California has 9 air basins that trap smog, including the small and narrow Sonoma Basin around the City of Santa Rosa. But Sonoma County enjoys comparatively clean air quality with airborne particulate levels way below the national average (city-data.com). The City of Santa Rosa has one of the lowest levels of ozone in the U.S., according to a 2007 survey in Business Week. None of either Sonoma Clean Power’s proposed future power plants nor any of PG&E’s existing power plants are located inside the Sonoma Air Basin nor would they contribute to trapping smog.

Switching to a new municipal electric utility doesn’t seem to be meeting much resistance in liberal Sonoma County, 75 percent of which voted for Pres. Obama in 2008 and 71 percent in 2012.

According to Stanford University Graduate School of Business the Levelized Cost of Crystalline Rooftop Solar Power is 24 cents per kilowatt hour excluding tax incentives, reverse metering costs and any reclassification of transmission costs as distribution by the California Public Utilities Commission (CPUC). Reverse metering entails having to reengineer the electric grid to run two ways, both to and from its customers.

Clean Power is Socialized Power

To make clean power economically feasible its higher cost has to be socialized over a large number of electric ratepayers, taxpayers, or shifted to large commercial users, such as California’s Cap and Trade emissions program does. Clean power is socialized power.

But some Sonomans might reply: “what do we care if clean energy is socialized, as long as we can privatize the profits and socialize the costs onto other PG&E or Sonoma Clean Power customers, while creating local jobs?”

To prevent cost shifting the CPUC would tack a 2-cent per kilowatt-hour surcharge on all electricity ratepayers Sonoma County. Additionally, a $10 per month surcharge on rooftop solar homeowners has recently been enacted under State Assembly Bil AB 327 to deal with the cost-shifting problem.

Certainly, the City of Santa Rosa won’t oppose higher-priced clean power because it tacks a 5% Utility Users Tax on electricity bills to feed its precarious general fund.

A county-run municipal electricity utility cannot make profits or enjoy clean power tax credits or tax write-offs. Power plants built by PG&E can be financed by both taxable debt and equity (stocks) while SCP can avail itself only of tax-exempt bonds. Tax exempt bonds are a potential advantage to SCP. But low-interest bonds also mean that SCP ratepayers would have to bear 100% of any default on those bonds compared to PG&E that can shift some risk to stockholders.

Sonoma Clean Power Plays “How to Beat the Market”

Sonoma Clean Power is a gamble that it can buy cheap power or build power plants that generate cheap, clean power. If SCP builds power plants it incurs the risk that the power cannot be sold at the cost to produce it. Alternatively, if Sonoma buys power in the spot market that would expose it to the risk of market price volatility. This risk could be hedged or insured but at an extra cost.

Bill Roberts, economist for the Bay Area Economic Forum, in his 2007 study on the municipalization of local power purchases and generation, warned:

“If PG&E operates any retained generation and Sonoma Clean Power purchases 100% of its power supply in the competitive market, Sonoma cannot avoid higher average electricity rates than PG&E unless it subsidizes rates (or someone wins the gamble of ‘beating the market’).” [page 13, paraphrased for clarity].

To beat the market SCP must build its own power plants. SCP wants to build a new geothermal power plant nearby in The Geysers, the world’s largest geothermal energy field.

But tapping new geothermal power is a very risky venture, as Gov. Jerry Brown found out with his planned Bottle Rock Geothermal Power Plant after he left the Governor’s office in the 1970’s. The Metropolitan Water District of Southern California ended up having to pay off $282 million in bonds to bail Brown out of a political fiasco. In a long, complicated story, the City of Santa Rosa in Sonoma County ended up with cheap geothermal power partly paid for by water ratepayers in Southern California. But the next time Sonoma County residents will not be so lucky and will have to pay for any power plant fiascos.

Sonoma Clean Power will soon have to bring a concrete proposal for a clean power plant before the county for review. Any clean power plant proposal would be entirely superfluous in “blue sky” Sonoma County. By all indications the wine country of Sonoma County is going to end up drunk on unneeded green power. If it doesn’t make economic sense upon independent review, it remains to be seen how many Sonoma County residents may want to reconsider their gamble on municipal clean power, including exercising their “choice” to opt out of the program and return to PG&E as a customer.