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Some important changes are taking place in the economics of the energy industry.
Electricity rates keep going up. This is happening across the board, but there’s good reason to take a close look at the downstream effect on businesses: Rising electricity rates drive up consumer costs and cause businesses to pick up and move elsewhere. We certainly see that dynamic here in San Diego, where commercial electricity rates are among the highest in the country.
But there’s an alternative model under consideration here that can help keep commercial electricity rates down. The basic idea behind Community Choice Aggregation is that a local government agency, staffed with energy industry professionals, buys power for residents and businesses. Meanwhile, the utility continues to run the power lines and charge customers for the service. Participation is optional, and the utility continues to buy power for those who prefer to stick with their existing plans.
There are currently two of these alternative energy providers in Northern California: Marin Clean Energy (which, full disclosure, is a client of mine) and Sonoma Clean Power. Notably, these programs champion renewable energy and provide greater renewable content than Pacific Gas and Electric, the utility in that area.
The city of San Diego is in the early stages of studying this concept, and hasn’t yet started to design a program. But these alternative providers can be designed to keep commercial electricity rates down. Here’s how.
Economists tell us that if you introduce competition into the market, all things being equal, prices go down. Businesses that compete for customers have an incentive to be efficient and offer products at lower prices than the competition. Right now, San Diego Gas & Electric has no competition. Customers have nowhere else to go, and so there’s no market incentive to be efficient and keep prices down.
Power generation has grown in new and unexpected ways over the last few years, especially with advances in renewable energy. Businesses and other customers should have the ability to buy the kind of power that suits their needs. An alternative energy provider can create special customer classes and buy power specifically for them.
Many businesses have the ability to generate their own power by installing solar panels on roofs or in parking lots. The financial rewards for generating power and reducing your bill, or even selling power back to your provider, have potential to be great. The problem is that businesses don’t have strong incentives to do so because of the way utilities bill for this sort of generation.
SDG&E has been critical of self-generation and supported legislation to impose limits on it. An alternative energy provider, like a CCA program, can design stronger incentives for businesses to generate their own power and, again, help keep energy costs down.
Advocating for Lower Rates
An alternative energy provider behaves differently than a utility. CCA programs, for example, have used the political and legal process to advocate for lower transmission and distribution charges, utility fees and rates in general. You’re not going to see that kind of advocacy from utilities, who must serve shareholders, or regulators that are struggling with proper oversight.
Whether San Diego decides that an alternative energy provider is right for the city remains to be seen. A feasibility study should be released later this year and will answer a lot of questions on that subject. However the process unfolds, keeping commercial electricity rates down should be at the top of the priority list.
Ty Tosdal is an attorney at Tosdal Law Firm in Solana Beach. He specializes in litigation and regulatory law. Tosdal’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.