The bankruptcy of northern California’s state regulated gas and electricity utility, PG&E, is of great concern to northern California local governments as well as to PG&E’s shareholders and bondholders, state elected officials, and state utility regulators. PG&E’s electricity distribution assets are a specific focus of concern. Intentional, large scale precautionary power outages in 2019 have been costly and disruptive to affected communities. Two major cities, San Francisco and San Jose, have responded pro-actively by offering to purchase and operate PG&E’s electricity distribution assets within their boundaries. San Jose already provides generation services through a city sponsored Community Choice service provider, San Jose Clean Power. A Community Choice provider in California’s Central Valley, Valley Clean Energy (VCE), also submitted a bid to acquire PG&E’s electricity distribution Yolo County assets.
Such asset acquisition initiatives raise important questions for northern California communities and members of the California Alliance for Community Energy (CACE). In a rapidly transitioning California energy sector, Community Choice providers will need to adapt. Is electricity infrastructure asset acquisition, aka “municipalization”, a plausible and attractive evolutionary pathway for Community Choice member jurisdictions?
CACE decided to devote its November monthly member conference call to a discussion of the pros and cons of CCA-Enabled Asset Acquisition. As a member and chair of the VCE Community Advisory Committee, I was asked to kick off and lead a discussion around two main questions, i.e. 1) “What do you see as the biggest PRO of municipalization, and the biggest CON?” and 2) “What could a Community Choice program do after municipalization, that it cannot do as a Community Choice program?”
I advised that the biggest PRO is the opportunity for closer and much improved long-term integration of local clean energy resources and local energy delivery. Local officials overseeing local electricity grid planning and operations would have the right and obligation to set policies for local grid investment and operation that affect the environmental profile and resilience of local energy service. I also advised that the biggest CON is the requirement for large public investments that would be at near-term risk of underperformance. Underperformance might result in unstable business plans and limit internal organizational capacity to deliver better integration of local resources and local energy delivery.
With public power rights come responsibilities, e.g. to ensure a well-trained, well managed work force with deep experience in electricity distribution planning and operations. Such a work force of course already exists and is unionized but repositioning it organizationally may require state legislation.
I pointed out that alternative, incremental, strategies are available. They can also be foundational to better integration of local clean energy resources and local energy delivery. For example, collaborative local renewable integration, the focus of IRESN’s work in 2018 and 2019, recognizes the increasing need to deal with energy issues in an collaborative local context. Asset ownership changes by themselves may or may not result in more effective local renewable integration.
In summary, future local electricity distribution systems, planned and managed by technically qualified distribution system operators, will take the evolution of regional grids to new levels of technical and economic sophistication. Emerging risks and opportunities will create a need for new business models. As illustrated in Figure 1, an increasing range of outcomes is possible, ranging from much improved regional and local grid integration to customer defection, stranded and unproductive assets, etc.
Figure 1. Solar and Battery Enabled Local Electricity Grid Evolution
Asset ownership would allow communities to enjoy the benefits of public power and have more robust options for local decarbonization and climate adaptation. In California, many communities already enjoy the benefits of public power, based on decisions taken in decades past. Headwinds to future decisions for public power include asset prices in the same range as local jurisdiction annual budgets.[1] More subtle and perhaps more daunting barriers include the need to provide for a seamless transition from private to public power while managing transformative technical and market change. Outsourcing of utility operations would be required, at least initially. Would outsourcing be strategically and tactically compatible with managing both seamless transition and transformative change?
Gerald Braun, IRESN
December 2019
References:
1. State Policies for Collaborative Local Renewable Integration, IRESN, 2019
2. Off-Grid Solar Power vs Grid-Connected Solar Power in the 21st Century, Cleantechnica.com, 2015
3. Slide Deck - CCA-Enabled Asset Acquisition: Pros, Cons, Rights and Responsibilities, IRESN, 2019
[1] Valley Clean Energy, a joint powers Community Choice agency serving Yolo County, California (200,000 population) recently offered to pay $300 million for electricity distribution assets owned by PG&E.