The Morning Report
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The San Diego County Water Authority is trying to become a player in the energy market. It’s not going very well.
The agency’s biggest energy project is increasingly bogged down by a soaring price tag, relatively small returns and questions about whether it’s even needed.
The project aims to address what’s become a major problem in the energy world: how to stop using fossil fuels without sacrificing reliability.
Power generated from the sun, wind and water are better for the environment, but the sun doesn’t always shine, wind doesn’t always blow and hydroelectricity doesn’t work in a drought.
The Water Authority wants to build a large “pumped storage” facility in East County, which uses water to store wind and solar energy.
Right now, there’s too much solar and wind power during the day, when demand is relatively low. But there’s not enough at night, when demand is high. That means solar and wind power is lost, unless it can be stored.
The Water Authority would create a giant battery using the county’s largest reservoir, the lake behind San Vicente Dam near Lakeside. The city of San Diego would also have stake in the project because it owns and operates San Vicente.
The Water Authority 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, it would release water from the upper reservoir back down to the lower reservoir. As the water falls, it would spin turbines, which generates electricity that the water agencies would sell at the higher price.
There are several versions of the project, but the most-talked about could store 500 megawatts worth of hydroelectricity. A megawatt is enough electricity to meet the instantaneous demand of nearly 1,000 homes.
For this all to work, though, the Water Authority needs someone to buy power from and to sell power to. It could also use a partner to help shoulder the project’s billion-dollar (and rising) price tag – without a partner, the Water Authority would have to raise rates to afford it.
The logical choice for both would seem to be San Diego Gas & Electric, the local power monopoly.
In fact, SDG&E talked with the Water Authority about the project back in 2011. The company offered to partner with the Water Authority and pay for a study of the project, said SDG&E spokeswoman Stephanie Donovan.
“We talked with them again in 2013 and as recently as a year ago,” Donovan said in an email, “but to date, we have not received a response to our offer and have not been apprised of the Water Authority’s current plans or the status of our proposal.”
Dennis Cushman, the assistant general manager of the Water Authority, disputed the idea that the water agency ignored SDG&E.
“We did not believe SDG&E’s offer reflected the value of the project, and we told them that,” he said.
The Water Authority and the city of San Diego have spent $3.7 million studying energy storage so they will be in a better position to make a good deal or walk away from a bad one.
Last year, they thought they could spend $1 billion to earn back $2 billion over 20 years. The major costs include creation of a new dam and construction of new power transmission lines.
Now, costs are expected to be at least $1.8 billion. But the return on that investment is still $2.1 billion.
Under that scenario, the return on investment would be $300 million in 20 years. The Water Authority could easily make more money simply by making low-risk investments in the stock market.
The Water Authority and the city are testing other business models that wouldn’t cost their customers. They could lease the property to developers. That would be low-risk but potentially even lower-return.
Members of the Water Authority’s board worry the agency lacks the expertise to enter the energy market.
Fern Steiner, who represents the city on the Water Authority board, said the project boils down to “a water agency building an electric company.”
At a recent meeting of the Water Authority board, there was a bewildering exchange that suggested fundamental questions remain unanswered even though the Water Authority’s been working on the project since 2006.
Board members were told that “many” entities are interested in becoming partners in some sort of joint venture.
Yet, who those entities are and what they want remains unclear.
Would they step up with their own money, or would they ask the Water Authority and its customers to shoulder the risk?
Maureen Stapleton, the Water Authority’s general manager, said it would be speculation for her to say.
“Do they want part ownership?” she said. “Do they want all ownership, and so forth?”
Michael Hogan, a Water Authority board member who has been leading the board’s analysis of the project, said that instead of further study, it’s perhaps time to just ask would-be partners and investors what the project is worth to them.
“That’s something we have to test in the real market,” he said.
Mark Watton, a Water Authority board member and general manager of the Otay Water District, said with battery technology rapidly advancing, a big civil engineering project involving water may not be the future of energy storage.
“If it were my choice, I wouldn’t want to commit to a 30-year technology,” Watton said.
Several Water Authority board members said they don’t believe there’s any appetite for the Water Authority to do the energy storage project on its own or maybe even at all. The board is supposed to hear about the project again in coming months and could take some sort of action.
“If there was a determination to be made today, I don’t think this thing would fly,” said Tom Kennedy, a Water Authority board member who is also the general manager of the Rainbow Municipal Water District in North County.