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Thursday, August 1, 2013

San Francisco Turns the Corner as CleanPowerSF In-City Buildout Strategy Takes Hold

San Francisco – August 1.  I am pleased to report that CleanPowerSF has achieved an important new program realignment for the City's Community Choice Aggregation (CCA) program, which became evident when the City's new CCA Director presented an updated CleanPowerSF business model and strategy to members of San Francisco's Public Utilities Commission and Local Agency Formation Commission -  re-centering CleanPowerSF's focus on building local renewable power generation and efficiency in the City to serve local demand, using the CCA's ability to augment revenue bonds to finance the new infrastructure based on CCA ratesetting authority and substantial annual revenues. While there remain improvements to be made, and important weigh-in from the Board of Supervisors on the amount of revenue bonds to be issued, this is major news for Local Power, and we want to register this judgement publicly.

At a July 9 joint hearing of the two key Commissions governing and operating CleanPowerSF, including several city supervisors, CCA Director Kim Malcolm outlined a return to the original concept of CCA as a means to build distributed local renewables at scale, reducing consumption to repay solar bonds from the surplus. “Unlike Marin, San Francisco was conceived as a build-out program as well as a procurement service to customers.” explained Ms. Malcolm in the televised meeting. “So it is a little bit different business model and they have different circumstances.”

California’s first CCA, the Marin Energy Authority, is primarily focused on greener power procurement, or the purchase of greener electricity from suppliers the grid. But the City's CCA Director confirmed that San Francisco will focus the City's competitive electricity program on building local renewable power in San Francisco neighborhoods, in effect adopting Local Power's strategy and program design including numerous related recommendations Local Power made to SFPUC staff and Commissioners earlier this year.

Fortunately, Local Power's business model is starting to take hold in California. A similar focus on localization is being pursued north of Marin in Sonoma County's CCA, where a newly formed county/city-led joint powers agency, Sonoma Clean Power, has already been formed and held its first meeting last week, already including 2/3 of the countywide energy demand eligible to receive the service. Local Power Inc. also had a major role in helping the County and its water agency define the feasibility and strategy of energy localization, collecting and analyzing PG&E data for the county, and defining the economic feasibility of localization in Sonoma County, as a partner with the county water agency and data collector/manager for all of Sonoma's local governments.

In San Francisco, the July 9 joint hearing of SFPUC and SFLAFCO commissioners is a significant shift from previous staff’s earlier focus on procurement, a strategy that can give the City more control of energy it buys as to its GHG content, but would have been too expensive to afford investment in local resources that are needed to make the leap-of-business-plan, from a supply-based to a demand-based financial structure for the City - critical to delivering on the potential of Community Choice. CCA Director Malcolm's change is an important indication that CleanPowerSF will stay on track to meet the neighborhood solar innovation by San Francisco supporters and activists for more than a decade - and will finally answer the mandate of San Francisco voters when they approved the City’s solar finance authority, Proposition H - the "Neighborhood Solar Initiative" which has remained a key component of CleanPowerSF's "build-it approach," in 2001.

Local Power Inc. pioneered the CCA model, writing both the original state laws in California and Massachusetts, and San Francisco's unique local revenue bond charter authority that LPI conceived and drafted as an upgrade to our original CCA model - allowing purchasing aggregations to build and purchase power from their own local renewable facilities. We draft a plethora of ordinances, plans, studies, program design, and specifications in many hundreds of pages, since the original CCA ordinance was adopted and signed by Mayor Newsom in 2004. All along we have asserted that a substantial localization is economically feasible with competitive rates. We are glad to have won a contract to prove this mathematically to SFPUC, so that our change of business model - CCA 2.0 - can replicate and transform the energy industry. Local Power Inc. has proven in our deliverables to SFPUC that a $1B investment will deliver a $600M return in investment to the City, at rate parity. Were we allowed to complete a final draft of this model, we anticipated based on our many runs of the data that even greater localization at rate parity is economically feasible. With all the conjectural journalism, PR wars and straight propaganda surrounding CleanPowerSF, it is hard for people to know what is really going on. The answer is: pretty damn good, and I don't say that casually.

(Download summary version of Local Power Inc.'s work for CleanPowerSF - publicly released by SFPUC here in PDF format).

SFPUC’s response to Local Power's input is a significant starting point with the agreement to start building at launch. The question is obviously how large - we said $1B over 10 years. A substantial local build-out component as part of the program launch – $200M is a substantial amount for the first few years of startup based on limited initial participating customers, but the annual revenue bond issuance schedule for planning a decade of development, $1B is not so outrageously large an amount. The number of $200M should therefore rise if we are implementing a citywide program - not just a permanent startup.

Moreover, the decision to actually issue bonds must be the Board of Supes and Mayor, says the Charter (9.107.8). Therefore, it is appropriate that the Board of Supervisors and Mayor deliberate and hold hearings on an ordinance authorizing H bonds in coming months.  If Supervisors are uncomfortable with $1B of local investment, other supplemental public investments might be considered from Pension Funds currently being divested from fossil investments, and other supplemental options exist to get CleanPowerSF's In-City Buildout to the scale that is both possible and called for by the citizens of the City when they approved the H Bond "neighborhood solar" authority.

In its work for SFPUC completed in March, LPI recommended $1B in investment for extensive solar roofs, wind, extensive efficiency measures, and co-generation.  SFPUC staff claims a debt capacity of $200M for localization even at year 2.5. In our view, this is a policy matter - it just a question of how much city leaders will authorize in H Bonds to deliver on the true promise of CCA to accelerate localization.

I responded to the news by saying that while staff mentioned a lesser investment capacity of $200M, this is a start. Now the Board of Supervisors and SFPUC Commission may consider providing guidance to accelerate offering service citywide to any eligible resident or business, in order to raise more revenue and increase debt-carrying capacity.  Mentioning $200M  of H Bond carrying capacity and starting Buildout at launch indicates staff have internalized the need to make localization the integral focus of CleanPowerSF - unlike in Marin and other CCAs, where the focus was more on Renewable Energy Credits, with the supplier (Shell) more in control. Getting it right from the start – which is launching the In-City Buildout from day one – is the key to achieving real, scaled change with CleanPowerSF. From Local Power’s perspective, this is a welcome shift on part of CCA Director Malcolm, and vindicates the work my company did for the City even though our recommendations may have seemed controversial to some staff members when we submitted and presented to the SFPUC Commission and Rate Fairness Board, but not yet at the Board of Supervisors, which under the Charter must authorize H Bonds by ordinance.

The City's renewed focus on the in-city build-out from day one, is an auspicious starting point on the scale that is needed for CCA to be realized.  Locally generated clean power on a City-wide scale is a new kind of power which departs from the highly centralized model of traditional utilities. Energy localization - local ownership, local renewable generation and energy efficiency, means that CleanPowerSF will take a behind-the-meter approach to energy service, and this is the essential leap required to stop imitating conventional supply side utilities.  The model also establishes local control, community energy security and permanent energy independence – unlike strictly green supply products that “monetize” benefits to other parties but do not change physical supply.

Community Choice Aggregation has exploded around the country over the past two years, now resulting in some 1200 cities across the country pursuing the aggregation strategy as a means to dramatically reduce greenhouse gas emissions with little to no impact on rates.  Local Power Inc. started this movement and has worked tirelessly for two decades to realize its potential as a game-changer to mainstream decentralized, customer-owned renewable technologies.

SFPUC staff and commissioners’ statements include the following related changes:
  • Most importantly, the In-City Buildout will begin at program launch rather than waiting until later. SFPUC predicts the CCA revenue alone will provide a $200M bonding capacity over 2.5 years. Staff are preparing an In-City Buildout map. 
  • Accordingly, SFPUC announced that the GoSolar program to be integrated as a component of CleanPowerSF, bringing financing for customers into the service’s business model. SFPUC assures that In-City Buildout funds are assured, and that the program has headroom for reducing the rates further.
  • As Local Power strongly recommended, SFPUC also changed its procurement strategy, both in terms of Renewable Portfolio definition and in terms of getting lower prices from Shell so that surpluses are created for H Bond financing of localization. 
  • SFPUC took our advice to renegotiate lower prices with Shell and use lower cost RECs to reduce cost while focusing investment on In-City Buildout. SFPUC renegotiated with Shell and reduced “not-to-exceed” rates to 11.5 cents, but expects it could set rate comfortable under 11 cents. With PG&E at nine cents CleanPowerSF is within striking distance of a competitive rate. Expected CleanPowerSF bills are now within a couple of dollars of PG&E’s proposed all-REC tariff, and some are calling on the Commission to meet-or-beat the tariff. 
  • SFPUC staff have finally taken LPI's recommendations that SFPUC use city-owned hydroelectric power at Hetch Hetchy to reduce costs and fossil power dependence in the community’s power portfolio. They agreed that to accomplish this they need to build up the agency's transmission scheduling capability internally. LPI also recommended that the SFPUC create new in-house expertise in Behind-the-Meter renewable generation projects, demand response and energy efficiency applications, presently seeking a full-time manager to advance the critical behind-the-meter opportunities identified by LPI in our work for the SFPUC - the very opportunities that unlock decentralized energy as "baseload-quality" infrastructure.  

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