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San Diego’s two largest utilities are at odds over power, both literal and figurative.
The San Diego County Water Authority hopes to save millions in coming years by generating hydroelectric power for itself and by buying electricity from sources other than San Diego Gas & Electric, the local power monopoly.
The Water Authority, however, says SDG&E is standing in the way of its plans.
The two agencies are, respectively, the region’s major suppliers of power and water. And their dispute echoes struggles both utilities are already having within their respective industries.
In one example of the Water Authority’s energy ambitions, it just entered into a 50-year contract to buy hydroelectricity from the federally operated Hoover Dam. That low-cost power alone could help the Water Authority save $300,000 a year, particularly at its desalination plant in Carlsbad, which uses an energy-intensive process to remove salt from ocean water.
The Water Authority also has bigger plans to become part of the energy world in the future. It’s working a $1 billion project to create a giant battery of sorts using two reservoirs in East County.
The problem is the Water Authority doesn’t own power lines. So, the Water Authority needs SDG&E’s lines to move the power.
After nine months of negotiations, the two utilities are at an impasse over the rate SDG&E should be able to charge the Water Authority.
The Water Authority wants to pay a low wholesale rate to use SDG&E’s lines. The power company says that the Water Authority doesn’t quality for that rate.
Now, the Water Authority is preparing to go to the state Legislature to get the low rate it wants.
The Water Authority’s has already brought a series of lawsuits against the Metropolitan Water District of Southern California, the region’s largest water supplier. The Water Authority buys water from Metropolitan and then resells that water to local water agencies, like the city of San Diego’s Public Utilities Department.
In that dispute, the Water Authority purchased access to large quantities of Colorado River water but cannot get that water to San Diego without Metropolitan’s pipelines. The Water Authority argues Metropolitan is using its control of aqueducts and water pipelines to charge unreasonable prices for delivering that water.
In the dispute with SDG&E, the Water Authority purchased a small amount of hydroelectricity from the Hoover Dam, which holds back the Colorado River. As water flows down from behind the dam, the water spins turbines, which generates electricity. Now, the Water Authority believes it is SDG&E that is imposing unreasonable rates.
For SDG&E’s part, it’s worried about being able to expand and maintain its vast energy grid. The power company, long in charge of the electricity produced and provided within the region, could lose some control of the means of power production and distribution it once enjoyed.
For now, the amount of electricity involved is relatively small. In the immediate future, the Water Authority is asking only for low rates to transport 6.1 megawatts. A megawatt is enough electricity to meet the instantaneous demand of nearly 1,000 homes.
It’s not very significant. As Water Authority Assistant General Manager Dennis Cushman put it, “6.1 megawatts to SDG&E is a shot glass of water to the Water Authority.”
The Water Authority says the deal it wants with SDG&E is similar to agreements other public agencies have with private power companies.
SDG&E says the Water Authority is asking to avoid fees that must be paid: If the Water Authority saves millions, the company argues, then SDG&E customers may lose millions.
“SDG&E does not believe that asking SDG&E customers to subsidize SDCWA’s water rates makes sense,” company spokeswoman Allison Torres said in an email.
Torres said SDG&E proposed four alternatives to the Water Authority’s requests but they were rejected by the Water Authority.
Many San Diegans are customers of both agencies, so perhaps this whole debate seems like robbing Peter to pay Paul.
The stakes may be in the few millions now – the Water Authority’s budget is roughly $750 million a year and the savings at stake right now are less than 1 percent of that. But a million or so now could quickly become many more millions in the future. That’s because the Water Authority is looking at larger energy-related projects.
Right now, the Water Authority gets basically all of its power from SDG&E, about 276,000 megawatt hours per year. By 2037, it wants to reduce that to 222,000 megawatt hours while also having over 1 million megawatt hours of power to call its own.
Most of that power would come through a $1 billion joint project the Water Authority is working on with the city of San Diego. Its plan is to create a giant battery using the county’s largest reservoir, the lake behind San Vicente Dam near Lakeside.
The project is in the early stages of a lengthy permitting process: The Water Authority and the city would buy power when it’s cheapest and use that electricity to pump water uphill from the existing reservoir to a new, higher-elevation reservoir.
When electricity prices rise, the water from the higher reservoir would be released to the low reservoir. That drop would generate hydroelectricity that the water agencies would then sell at a higher price than they paid for the electricity they used to pump the water up the hill. They expect to generate about $2 billion in revenue over a 20-year period, according to a 2015 estimate.
The project would not create any new power, it would only store existing power, but the water agencies believe the project will be a boon for solar and wind projects in Southern California. By operating like a giant battery, the project would allow solar energy to be used when the sun doesn’t shine and wind energy to be stored for when a breeze doesn’t blow. Right now, solar projects sometimes create too much electricity when it’s not needed and it can’t be stored. For that to work, though, the Water Authority needs power lines and SDG&E owns all of them. The project would seem to need SDG&E’s legal and financial cooperation.
The Water Authority’s entrance into the power business has been a long time coming. In California, some public water agencies are in the water and power business, like the Los Angeles Department of Water Power and the Imperial Irrigation District. The Water Authority has historically never been one of those.
Then, in 2000, the Water Authority received broad legal authority to buy and sell electricity and natural gas. The purpose of the initial legislation seemed pretty clear at the time, according to Water Authority representatives involved in the discussions. The bill was intended to allow the Water Authority to “own and operate works for supplying its member agencies with gas and electricity.”
While SDG&E is known for tenacious lobbying in Sacramento, the Water Authority bill passed at a time when the power company was very unpopular. In 2000, SDG&E’s rates had doubled as California’s experiment with deregulated electricity markets came flying apart.
Now, the Water Authority wants to lawmakers to force SDG&E to charge the low rate from SDG&E. That would be unnecessary, though, if SDG&E simply agreed.
Since the bill became law, the Water Authority has worked on a series of relatively modest energy projects. It has two hydroelectric facilities, one at Lake Hodges near Escondido and the other near Mira Mesa.
The Water Authority sells the hydroelectricity from those two facilities to SDG&E, and then the power company resells the power to its customers, so the two are already business partners. Now, the Water Authority wants to keep that power for itself when two contracts expire but use SDG&E’s lines to move the power around.
Without SDG&E’s cooperation, the hydroelectricity the Water Authority generates and the hydroelectricity that it has agreed to buy from the Hoover Dam will become stranded assets of sorts.
If the Water Authority and SDG&E can’t reach an agreement, the Water Authority can resell the Hoover Dam power to someone else, but that won’t bring in as much money.
Disclosure: Mitch Mitchell, SDG&E’s vice president of state government and external affairs, serves on Voice of San Diego’s board of directors.
Correction: An earlier version of this post said the Water Authority hopes to reduce the amount of power it receives from SDG&E to 222,000 megawatts by 2020. It hopes to make the reduction to 222,000 megawatt hours by 2037.