All Episodes
Previous Next
Feb. 8, 2021 - Epoch Times
23:51
California Cities Are Getting Into the Utilities Business | Michael Hoskinson
| Copy link to current segment

Time Text
We want to talk to you about utility companies and energy in Southern California and California.
Tell us more about the utility business in general, how it works.
There is a massive danger to this business and one would think that it would only want to be undertaken by experts.
How does the program work?
It gives the city council the ability to take away a cash flow from a public business.
So with a wave of their pen, they are able to say, SCE, all that money that customers paid you, they're going to pay to us now.
When you mentioned that California is the largest importer of energy, what does it mean?
You've taken away capacity for generation of good solid energy and you've replaced it with intermittent energy of solar and wind and things of that nature.
So I think this is why they have to go out to other states and bring the power in because they have intentionally removed the generation capacity.
And what do you recommend to the city council members that may be watching this show?
Don't form a CCA. I think the risk to the city is massive.
If amateurs take this over, risk of bankruptcy, risk of blackouts or brownouts.
But at this juncture right now, I'll take the devil I know versus, you know, the one that I don't know what's around the corner with the CCEs.
California's local governments are getting into the utility business with the ambition of cost savings and bringing green energy.
My guest today is Michael Huskins.
He served on the Planning Commission of Huntington Beach.
Today he discusses why the cities want to become utility service providers and the risks they may face.
Welcome to California Insider.
Mike, it's great to have you on.
Welcome.
Thank you.
We want to talk to you about utility companies and energy in Southern California and California.
You know, there are some efforts from the city councils to get into the utility business.
Yes.
And tell us more about the utility business in general, how it works.
Well, from my understanding is you've got the large providers and they're called IOUs, investor-owned utilities, so they're publicly traded companies that generate, transmit, bill, maintain what's called the grid.
And the grid can be thought of in simple terms like a lake of energy that all the energy that is purchased or Generated, is poured into, then it is directed to the end user, which is you and I. So it's a reasonably simple business, but also a money and time intensive business that is extremely complex from the purchasing angle, from the maintenance angle.
When we've seen issues like Paradise, California that burned to the ground and the blame went to the power company for not maintaining the lines correctly.
So there is a massive danger to this business and one would think that it would only want to be undertaken by experts.
And now the cities are getting into this business.
Yes.
And can you explain to us, you've done a lot of research on this.
Can you tell us about your research and what these programs are?
So the concept of community choice aggregation, now called community choice energy, was invented by a gentleman in, I believe, Massachusetts.
His name was Paul Finn.
And he was a guy who was a bit left of center, an academic sort of guy.
He was an anti-corporatist who wanted to, and I think in a kind of a honest way, Wanted to take power away from corporations that he felt were abusing small people, give it back to locals and give them more choice over what their, really their primary utility, which is energy, give them more choice over that.
So he invented the concept of it, but I think what happened after that, it was taken and run with in a lot of bad ways that are not beneficial to the public.
How does the program work?
So there's two things in Community Choice Energy to think about.
There's the narrative, and the narrative is the story we tell, right?
So if you said, Mike, what's your history?
I'm going to spin you either the truth or maybe I'm going to spin you a story that has elements of the truth or no truth at all.
The narrative of CCE is that it is you're going to stop doing business with the power company that you maybe don't like.
You're going to take over control of the purchasing of energy, that the energy is going to be green, that we're then going to aid in saving the planet from whether you believe in global warming or not.
That is one of their lines of sales.
That then you will have more, everything will be localized and that you will have more control over your destiny as far as energy goes.
SCE or PG&E, SDG&E, whichever one, still maintains the transmission and they maintain the lines and they do the billing for this.
So the company is still there working in the background, but your city council or other group formation is in charge of purchasing energy.
And the problem They have no qualifications in that business to do that.
So they have to rely on other groups that they pay, consultancies, energy traders, people with Wall Street types that perhaps don't have the best reputation for caring about the little guy.
So all of a sudden from wanting to get us more control over our lives, we're just beholden and out of the thumb of a different group.
And then the thing that concerns me the most about this is through the law, the California law now creeping across the country as well, It gives the city council the ability to take away a cash flow from a public business.
So with a wave of their pen, they are able to say, SCE, all that money that customers paid you, they're going to pay to us now.
So I don't have a lot of faith in my governments to spend money wisely right now.
They're kind of doing it without oversight.
So I'd prefer them not to have more of our money at the time.
So there's an argument that this is going to have savings, cost savings.
And I heard some discussions that they were arguing that, okay, you know, the utility companies, the cost of capital for them, the cost of borrowing is a lot higher than cities.
It's at 8% and the cities can borrow at 4%.
And this cost savings on borrowing funds to buy the energy would create savings.
What are your thoughts on that?
Well, I don't know if that's true or not.
I haven't delved into that corner, but I would say it's a bit of a misdirection.
So all the propaganda that I've seen is that the CCEs are going to go out into the open market and purchase energy more effectively than SCE does in our local area here.
The Irvine Joint Powers Authority that was just formed called the Orange County Power Authority, which I think encompasses five cities now and they want to grow it to many more cities.
At the moment, it represents, size-wise, 4% of Southern California Edison's service area.
So again, I don't know how an entity that is 4% of a whole claims they can buy something more effectively.
It's like your corner wine retailer saying he can buy wine cheaper than Costco.
I just don't know how that happens.
I don't believe it can happen.
Where do these utility companies buy their energy from?
There are a lot of out-of-state sources for energy.
For example, there is something called large hydro that we get a lot of energy from the Northwest.
I don't know why, but they don't consider it to be green energy.
It seems pretty green to me, but we do buy a lot of that type of energy from out-of-state that we don't generate in-state.
We generate a lot of energy in-state, quite a bit of it.
But there is a lot that comes from out of state.
Obviously a lot of solar from places out in the desert, Arizona, Utah are big ones where we get a lot of that.
Wind power from wherever they put wind farms.
Nuclear, which is not considered green, but again pretty green I think on the overall.
So we do buy a lot of it from out of state.
And is there a loss?
In fact, I just read, I'm sorry, that California is the largest importer of out of state energy.
And is there a loss in the transportation?
From what I understand, transporting energy across lines results in about a 7% loss of the power.
When you mentioned that California is the largest importer of energy, what does it mean?
So to me it means a couple of things.
That we're the largest state as far as population.
I think we're at 40 million now.
So those are a lot of power-hungry mouths to feed, so to speak.
Then it also means that because of the really draconian environmental standards that have been created here in the last 20 years, You're not building capacity close enough to people.
You're also removing sources of energy.
You've removed nuclear plants up and down the coast.
You've shuttered gas-fired plants that are about the cleanest thing we can have to have fossil fuel.
So you've taken away capacity for generation of good solid energy and you've replaced it with intermittent energy of solar and wind and things of that nature.
So I think this is why they have to go out to other states and bring the power in because they have intentionally removed the generation capacity.
What about the green component?
So that is one of the biggest sales pitches of CCE, that they are going to go out and buy green energy and again aid in cleaning up the carbon out of the atmosphere.
So there is a mechanism involved that the states have given them the right to do is if you have an energy retailer or an energy creator and let's say it was a A solar farm in Arizona that was creating 100 megawatts a year of real clean energy.
That facility is separately allowed to write what is called a renewable energy credit for every megawatt of real energy they produce.
So there's a separate entity that is produced.
That can be sold at the side.
That renewable energy credit can be sold to a CCE. Then the CCE can go buy the dirtiest fossil fuel they can find, put that renewable energy certificate on that, and sell it as green.
So there's a bit of paperwork misdirection that goes on in this sale of green.
Now, I'm not telling you they don't actually go out and buy green energy as well.
I think they're mandated to buy a certain amount of it.
Where the cost savings can come there is because renewable energy, the biggest two, solar and wind, are subsidized by the federal and the state government.
So it is an unequal market.
So if you and I were selling widgets and you had to produce your widget for a dollar and I produced mine but I was getting 50% of my build costs from the government, I have a natural advantage over you.
So I think that's what happens here as well.
So they're able to buy renewable energy at a deep discount on the taxpayers' back.
Do you mind explaining why the hydros, you think they're green?
Well, all I know is that If you've got a source of energy that is a natural stream or a natural waterfall that is generating energy by its movement, it seems green to me, but for some reason the state of California has determined that hydropower is not green.
So when they're buying sources that are not green, they don't count with what is called the Renewable Portfolio Standard.
Because California now is mandating, I think we're at 50% of every energy purchase has to be green energy.
So this great source of energy that is fairly close to us is determined not to be green.
With the greenwashing, the model that you're talking about, how does this 50% ratio work?
Are you asking me the renewable portfolio standards about mandated purchase of green energy?
So with greenwashing, it completely subverts that process because basically you're going out, you're a CCA, you have renewable energy credits, so you go out and buy the dirtiest energy you can.
Then you apply these renewable energy credits, magically dirty energy becomes green energy.
So in a parallel track, if you're going to go to the solar farm in Utah by 100 megawatts, it's real green energy.
So you're going to have credit for that.
So this way, they may give you credit for it because the state allows you to call that green energy even when it's not.
So what are the risks involved from the purchasing side if cities are buying, if these communities are buying their own energy?
So imagine you've got a city council and the city council of your city, and this is a mythical one, but they decide they're going to become a CCE. They have five people on the city council.
The city councilmen are now the ones that are going to go out into the energy spot market and purchase the energy.
Or they're going to hire consultants to act as their guides to go out and find them cheap energy.
The problem is the city council usually will not have any training in this and it's incredibly complex.
Or the consultants who have no fiduciary duty to the cities or their customers at all have no duty to go out and buy cheap energy or put contracts together, long-term contracts, that have a benefit for the consumer or benefit the city.
And the problem is, as we've seen in Palmdale, Palmdale closed their CCA after much fanfare and only being in existence for a couple of years, that they found they couldn't make it work out in the middle of the desert where the sun shines 300 days a year.
So you have this, again, narrative versus reality that these groups are finding out that it's not quite as simple and clean as they'd like it to be.
And then the problem for the city is, imagine that you've taken the direction of energy consultants and they put you in long-term contracts for energy.
Something happens and the viability of the CCE is such, like Palmdale found, we've got to close it.
What happens to those long-term contracts?
So these are the things that could potentially bankrupt cities, in my view.
And in case of Palmdale, why did they close it?
Did they not have savings?
They stated in the document, I believe I sent it over to you, they stated that they were not able, and the term escapes me right now, but basically the term they used is there's a requirement, and it's a good requirement.
For every one of the CCEs, when they are looking at all their power purchases, a certain part of it has to come from immediately dispatchable energy.
I'm amazed they did this because they usually make the wrong decisions, but they said, look cities, you can't go out and buy 100% renewable energy.
You can't buy 100% solar.
You can't buy 100% wind.
Whatever biomass or whatever it is you want to buy, because if there is a crisis, we need to know you've got enough energy that can, with the flip of the switch, power your town.
So they've said X amount of your purchases have to be that gas-fired, like we talked about, the AES plant, where it's an immediately dispatchable energy that there's no lag time at all.
So again, if a crisis comes, they're mandating you and saying, look, we've got to have this much energy.
So Palmdale basically said, we can't fulfill that obligation and still make money.
And that should tell people something, saying we can't buy this energy.
And if it's immediately dispatchable, it's probably pricier.
And they're saying, we can't either find it or we can't make it work competitively.
And they folded their tent after a couple of years.
Now, are the cities motivated to make an income from this or do they want to pass it to the users?
So I've never seen a scenario where they've passed it on to users.
I've never heard of that yet.
I think we have to live in the real world right now.
And if there's any group that I don't trust, it's a group of politicians to get control of the cash flow for their own purposes.
My concern is that there is a lot of union influence in Huntington Beach, in our town, and that they are looking at this and saying, we want control of that cash flow.
Because when we come time to negotiation, we want you all to say yes, because you can raise people's power rates in your will.
And I think that's just an on-tap cash flow for them that will be irresistible when they need to pay back the people that put them in office.
Or whatever other projects or things come up, they've got a way to simply say, well, let's raise everybody's rates a point.
They'll never notice it, and we're going to have a tremendous windfall.
So you think this will become like a type of a tax?
A tax or I mean whatever you'd like to call it.
I mean certainly anytime somebody pays more at the government behest it's a tax and I know they like to call it a fee but I think we know it's in reality a tax but it's just a tool or a weapon in the hands of people who are possibly corrupt that they should probably not have access to because I think for many politicians The ability,
and again, with no oversight, CCEs do not have to follow the rules like the investor-owned utilities, which have to go to Sacramento to go to the public utilities and say, we would like a fee increase or we want a rate increase.
The utilities have to go beg them for that.
CCAs can have one meeting and say, I'm going to raise everything 10%, and they sign it up and it's done.
So there's no oversight there, and I worry about that.
And the model is an opt-out model.
How's the rollout happening?
So, and again, this has been with every CCE that I've seen so far.
They have what they call opt-out, which means every citizen, every business, every industry, everything that draws power in whatever the service area is, is automatically opted in.
They're given a certain window, and I think the window in this one is going to be two or three months, to say, I don't want to be with the CCE, I want to stay with SCE. But what they find is that when they opt everybody in, they get a much higher retention rate because of people's apathy or their lack of knowledge, and they just think, well, I'll get it from them, I'll get it from him, it doesn't matter.
So they get about a 7%, I believe, opt-out in the process versus I think they were getting up in the 20% when they originally gave people a choice to join and then they found it wasn't high enough and they need to get that thing above that 20% opt-out rate to make it viable.
And in case of Palmdale, they went with this and it didn't work out and they came back out of it?
Well, again, all I know is what their stated reason was.
In fact, it was called resource allocation, I believe was the term they used.
And that ties directly back to buying that immediately dispatchable energy.
And I have a hard time imagining they couldn't buy it, but maybe it wasn't available or maybe the cost was too high.
I don't know.
And are there cases, do you know of any cases that have succeeded in making money and saving money?
I think it depends on what you call a success.
So probably the one that is touted the most is the first one, and it's called Marin Clean Energy, or MCE. In 2017, the CEO of Marine Clean Energy, a gal named Dawn Wise, came to the meeting in Huntington Beach.
She was part of the RaRa sales team.
She claimed that they had $50 million in the bank.
My first question was, why do you have all that money in the bank?
Shouldn't you be giving that back to rate payers?
Now apparently it's over $150 million they have in the bank.
But my understanding is because they were the first one and the rules about the greenwashing that we talked about earlier were much looser, I think eight or ten, nine years ago, that they were able to use all fossil fuel energy, use renewable energy certificates,
bank a tremendous amount of money because what they did was buy the cheapest, dirtiest power they could, And they marked it up to where the renewable money was, and they were able to take that big bulk of money and put it in the bank.
So you don't think the cities that are joining right now could have the same?
I think they can use some of it, but I know the rules have tightened somewhat about using renewable energy credits, so they can't do it to the extent that Marine Clean Energy did.
And what do you recommend to the city council members that may be watching this show?
Don't form a CCA. Stay with SCE. They are the leaders.
They are knowledgeable.
They take away any risk.
I think the risk to the city is massive if amateurs take this over.
Risk of bankruptcy, risk of blackouts or brownouts.
We've seen that all over the state.
We know we haven't.
Last summer and many more times.
I think the risk is tremendous.
And I think there are times when we want to, that something is so important that we don't dare let amateurs take it over.
And I think our power is won.
There's a lot of things I could probably do without, but I want to make sure my power's on when I go home.
There's some frustrations with utility companies.
They have a monopoly.
What about that?
I would actually ask people to say to themselves, has it been harmful to me?
I live with my wife in a modest home in Huntington Beach.
Our power bill between $60 and $90 a month.
We have air conditioning.
We have all the luxuries we could possibly wedge into our house.
I don't think that's A bad number to have that sort of lifestyle, to where I can control my environment, I can have all the lights I want, power the devices that run our lives now.
I don't think that's something that's out of...
I don't worry about the monopoly part of that.
If they started raising rates in a crazy amount or were being taxed to fix their infrastructure, maybe they'd have a problem with it.
But at this juncture right now, I'll take the devil I know versus the one that I don't know what's around the corner with the CCEs.
Well, thank you.
You're welcome.
▲
Export Selection