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Why Petaluma will carefully study its clean power options

I write to explain why Petaluma will carefully weigh participating in the county's Sonoma Clean Power (SCP) program before making a decision.

Local citizens unarguably want to take meaningful steps to reduce greenhouse gas emissions and accelerate the move to renewable resources. At the same time, many residents remain very price sensitive.

None of the four SCP finalist companies control significant generating resources in Northern California. Thus, at least in the early decades, the company selected will purchase most of its power on the open market.

Electricity markets tend to be quite volatile over time. In Northern California now, spot electricity prices are very low. There is a surplus of generating capacity, and natural gas is unusually cheap. In contrast, the spot price in Southern California is much higher, because large generating units are off-line and supply is tight. Point being, the current situation with low spot electricity prices cannot be counted on to last.

PG&E's customers receive a blend of power from company-owned hydro resources built over many decades, Diablo Canyon and market purchases. Nuclear power may not be green, but it is carbon-free. Well under half of PG&E's electricity comes from fossil fuels. And PG&E's diverse portfolio helps stabilize rates.

In contrast, SCP will initially deliver almost exclusively fossil fuel power purchased on the market. Undoubtedly SCP will sign contracts of varying lengths to reduce volatility, but it will still have far more rate exposure to market conditions than PG&E.

A good analogy is your mortgage. Think of PG&E as a boring but relatively stable fixed rate mortgage. Think of SCP as a variable rate mortgage jumping around in response to markets. Right now you could replace your fixed rate mortgage with a variable rate mortgage costing less, at least initially. Is that a good idea? Maybe, maybe not.

This key issue deserves more careful scrutiny. The County's response is twofold. First, they say that PG&E is exposed to the market the same way SCP is. But as discussed above, that aggressively overstates the case. Second, they say that SCP can hedge. But hedging is neither free nor perfect. This is a serious issue that deserves real analysis, not just glib bromides.

One frequent criticism is that PG&E doesn't pay enough for third-party solar power, and that SCP will pay more, thereby encouraging more. Sounds good. But those payments are passed through to ratepayers. So precisely how SCP would pay more yet maintain competitive rates is unknown.

I am concerned about SCP using an opt-out model rather than opt-in. Opt-out seems designed to capture customers who immediately throw away legalistic mail. This feature makes me particularly focused on making sure that SCP can deliver competitive rates over the long run under a wide range of possible market scenarios, which nobody has yet done.


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