Savings not guaranteed if city forms own power provider

May 20—Kern could teach the rest of California a thing or two about energy, conventional or renewable, but there's one aspect of the industry where the county may have a blind spot.

Not for long. The Bakersfield City Council's decision this month to study the feasibility of creating or joining an electricity retailer called a community choice aggregation could open the door to greater local control over where residents and businesses get the power they use on a daily basis — and how much they pay for it.

Whether it's a good idea to proceed remains to be seen, as CCAs present significant risks as well as benefits, with no promise they will match the prices already offered locally by Pacific Gas and Electric Co. At a minimum, the study will be the county's first introduction to a mechanism that has won over 200 cities and 20 counties around the state.

Councilman Bob Smith, who proposed the study and was among the council majority that voted in favor of it, sees CCAs as a promising trend that could eventually allow Bakersfield to build on its statewide leadership in the sector.

"We are in front of all energy and so it makes sense for the city of Bakersfield to be involved in that," the Ward 4 councilman said.

A more cautious tone was struck by the only council member who voted against moving forward, Ward 5's Bruce Freeman. Local control sounds good, and giving people an alternative to PG&E could be beneficial, he said, but ultimately a CCA would be judged by the rates it charges.

"We're talking about a massive decision for Bakersfield if we decide to do this," Freeman said. "I just wanted (the feasibility study) done right."

CCAs' results have varied since the state Legislature passed a law in 2002 spelling out how they're formed and operated. They can save ratepayers money, and often do, but supporters say that's less of a driving factor than the flexibility CCAs offer for investing more heavily in renewable energy.

Nor do CCAs sever customers' ties with investor-owned electric utilities. Even if Bakersfield ultimately goes with a CCA, San Francisco-based PG&E would continue to handle billing and charge local customers for power transmission and distribution. On top of that comes their share of the electricity generation the company has already contracted on their behalf years into the future, which is typically a considerable share of the monthly bill.

Customers would still be subject to tier-based pricing, in which their price per unit of energy increases along with consumption. PG&E's low-income and medical-based discounts would remain, though incentive programs like peak-day pricing would not.

Assuming as Smith does that Bakersfield would rather form its own CCA than joining an existing one, the organization would contract power from a generation facility before selling it to local customers at whatever rate it sets. Eventually the CCA might choose to borrow money to invest in building its own solar arrays or other power plants.

Big decisions would be made by a local commission or board, perhaps the City Council. The CCA would function with greater independence than a municipal utility. The city's general fund would not be liable for the organization's financial performance.

Savings relative to PG&E's rates can be expected to range between 2% and 9% — at least for a CCA's minority portion of a customer's total electric bill, according to two representatives of Santa Rosa-based advocacy group The Climate Center who spoke at the council meeting May 10 when the feasibility study was authorized. Neither of the two responded to repeated requests for comment.

More than two dozen CCAs operate around the state, serving more than 11 million customers. They are credited with hastening progress toward California's climate goals and promoting job creation by putting more money toward construction of renewable energy projects, including in eastern Kern.

CAUTIONARY TALE

CCAs can have weaknesses utilities like PG&E don't.

Residents are automatically enrolled if their city adopts a CCA — but they're allowed to opt out and rejoin their old utility if rates go too high, for example. That kind of price sensitivity keeps margins tight — and it can limit the organization's access to capital.

When Riverside County CCA Western Community Energy filed bankruptcy two years ago, New York-based Fitch Ratings Inc. said the case illustrated problems with CCAs' business model, in particular their ability to reach investment-grade ratings and maintain them.

WCE had trouble planning its power supply and serving a noncaptive base of 114,000 ratepayers. It struggled with limited access to capital. Fitch said it got hit by a jump in delinquencies during the pandemic, when it was unable to cut off customers' power.

Facing unexpected spikes in demand for power and inadequate risk management, WCE failed to raise its rates fast enough to keep up with its own bills — partly because it wanted to offer a better price than the competition.

Fitch said the CCA lacked the financial reserves it would have needed to hedge against future price increases, leaving it exposed to a sudden increase in power purchase costs.