Should Davis Pursue Its Own Publicly Owned Utility?

By David GreenwaldJanuary 9, 201463 comments

solar-2On Tuesday, at his State of the City Speech, Mayor Joe Krovoza announced that the city is very seriously looking at creating a “POU – Publicly Owned Utility – we received our second big report on that in the last month, and it continues to show… we can take greater control of our sustainability future and the savings of the rate payers of the city of Davis could be up to up 20%.”

The total savings could be between $103 and $134 million that would stay in the community if we went to a POU.

In 2006, Yolo County in a measure backed by all of the elected officials at the county and civil level, moved to discontinue its relationship with PG&E and go to SMUD.  PG&E would run a very misleading campaign against the move, spending well over $10 million, and ultimately it not only convinced Sacramento to vote against allowing Yolo County into SMUD, but very narrowly Yolo County defeated the measure, as well.

However, heavily backing the idea of public power was the city of Davis.

The city is now moving forward to examining its own options and it completed an Energy Assessment Report in 2012 outlining policy options available to the community.  The city, in June 2013, approved the retention of a legal firm, Nixon Peabody and Pacific Economics Group, to conduct an economic feasibility analysis.

The city is looking at three factors in evaluating its energy options: local control, cost, and environmental objectives.

The city has three options.

First, “Retain the Status Quo with PG&E where Davis has little or no control over what PG&E may or may not do within the City. This option prevents Davis from controlling its energy and environmental future.”

Second, “Form a Community Choice Aggregator (CCA) to transfer control of the electricity supply mix to Davis and to help to influence end use efficiency.”

And third, “Form a Publicly Owned Utility (POU) replacing PG&E as the electricity distributor utility with full community control of generation and tariffs.”

According to the staff report, “The POU option provides the City with the greatest benefits with respect to City energy drivers. Staying with PG&E long term has risks including continued rate increases (PG&E has very high rates vs. national comparison), under-investment in the City’s energy system assets over time, and no local control over system costs or energy portfolios.”

Staff argues, “Now is a good time for the City to be considering its future energy options given the low cost of capital and the potential to develop local cost-effective green energy projects that could be included in the City’s future energy portfolio.”

In the staff presentation, it was argued, “The POU gives Davis full control.  The City could acquire PG&E’s assets in Davis and use various savings to repay the loan used to finance the acquisition.  Davis would be certain to gain control of Public Purpose Program (PPP) fees.  Savings relative to PG&E would be about 20% with another 10% available in PPP amounts transferred to Davis.”

In the Energy Feasibility Report, the groups analyzed the three options most carefully.

Under the Status Quo option:

“PG&E would continue to provide the City with electric distribution services and would determine the sources of electricity for the City without regard for policy initiatives. Over time, there would be some improvement in the use of “green” power because  PG&E is moving to meet California’s Renewable Portfolio Standards (RPS) of 33% renewable energy.

“This means there will be reduced dependence on fossil fuel. PG&E also has regulatory mandates to support energy efficiency and distributed renewable generation. These environmental improvements are favorable outcomes and consistent with the City’s objectives.

“Under the Status Quo, consumers in Davis pay PG&E to satisfy these various mandates and requirements on a system-wide basis. There is no requirement that PG&E invest inside the City of Davis the nearly $4.5 million per year that Davis residents and businesses contribute for public purpose programs.

“The City has no ability to affect what PG&E may or may not do inside the City. This important disconnect prevents Davis from controlling its energy and environmental future.

“Under the Status Quo the City would be faced with the task of furthering its energy, environmental, and economic objectives for Davis without PG&E’s support.

“For example, Davis could take a more active role to promote the use of distributed energy, solar roof panels, and energy efficiency within the City. The City would need to use City funds to accomplish its objectives. The City would not have a meaningful voice or vote concerning what PG&E does or where it chooses to spend the many millions of dollars electric consumers in Davis pay to PG&E for generation (about $20 million annually) and public purpose programs (about $4.5 million annually).”

Under a POU option, “the City would acquire or replace PG&E’s distribution network of poles, wires, transformers, and meters. This analysis puts the cost for Davis at about $20 million. Although PG&E will seek more, $20 million is a reasonable estimate of the actual cost that would be set by the CPUC or a court if the City and PG&E cannot agree upon a price. Davis would need to finance an acquisition of PG&E’s assets or new replacement facilities. Davis would need to hire employees or outsource necessary activities like tree cutting, billing, and call centers. Taking into account all of the relevant factors, this Report demonstrates a standalone municipal utility could reduce the costs Davis’ residents and businesses pay relative to PG&E by about 20%.”

Staff argues, PG&E “has poor system reliability compared to other IOUs [investor-owned utility].”  They argue that their “average outage duraction is worse than SCE [Southern California Edison] and SDG&E [San Diego Gas & Electric].”  Studies have found that they have “more sustained outages per customer than SCE or SDG&E.”  Moreover, “PG&E has more momentary outages and is sliding in the wrong direction.”

The study found, “PG&E’s estimated generation cost is 8.28 cents per KWH.”  Right now, “Davis customers would pay $21.84 million per year to PG&E.”  That comes to “about 49.5% of the revenue Davis pays to PG&E.”  On the other hand, “The average municipal utility (POU) generation cost Is 6.40 cents Per KWH.”  Under a POU, “Davis customers would save $4.96 million per year, if a Davis POU could acquire electricity at a similar 6.4 cents per KWH, or $16.88 million per year.”  They add, “Each 1 cent per KWH increase for Davis would cost” about $2.64 million per year.”

—David M. Greenwald reporting

Author

  • David Greenwald

    Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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Breaking News Budget/Fiscal City of Davis Environment

63 comments

  1. A POU would allow us to get our own 4th generation nuclear power plant. One of the new modular reactors would be perfect for powering a town like Davis. Then we’d be perfectly green, no CO2 emmisions from electric power generation.

          1. Why get bogged down on a divisive issue that will lose 70% at least, when we can all agree or should all agree that going away from PG&E and towards a POU is going to save us money and help the environment.

          4. The nuclear power plant thing is a joke right? Of course if the question were framed the correct way, I bet I could get the 1,161 signatures needed to indeed get it on the ballot.

          5. No CO2 emissions, can’t get any better than that. We won’t have those ugly fields full of solar panels and windmills. What’s not to like?

          6. radioactive waste? leaks? three-eyed fish? fukoshima?

            personally i like solar and wind mill fields.

          11. You know jack.

            Read the second comment on the board and the “LOL”. Like I’d want a nuclear power plant in Davis.

          14. Matt, now let’s be Practical. There’s now only one G.I., but it’s not the original Growth Issue.

            i wonder who that is? LOL

          15. Practical died with the change to the new website. Now if you see postings by Impractical, watch out.

            That reminds me of the opening sketch for each episode of Mr. Peabody’s Improbable History, where the word Improbable was emblazoned on the litter carrying Cleopatra. It was a nice piece of humor, that.

          16. LOL Matt, hmmmm maybe Rusty49 will make a comeback if I can ever figure out how to register on this website. The website won’t let me register, should I take a hint, is David trying to tell me something? Then again I might change my moniker to Sherman.

            BTW, Mr. Peabody was great.
            Enjoy: http://www.youtube.com/watch?v=hy6oD7BZw50

          17. You realize G.I. that you were the only one in the old website who undertood the true meaning of practicality.

            I’ll see if we can unblock Rusty49 for you.

  2. Davis already has a nuclear power plant. It is part of the PG&E system and so are we. We should get rid of PG&E if it will result in reliable electrical service at lower rates. The problem is that PG&E will value its assets at a zillion dollars to try and keep us in their system.

  3. I can just see the result of a POU. People would require direct voting for setting rates, and then lawsuits if they don’t get their way. We would end up with decaying infrastructure, because improvements or upgrades would be viewed as growth inducing. Maybe option #2 would be better – a Community Choice aggregator – and would avoid meddling.

          1. Not a factor in performance, but it does limit the demands of one community from taking control. This may not work for Davis. If a POU were regional, Davis would have to learn how to work well with other communities and the “direct democracy or no growth” faction in Davis would lament giving up control to people in other communities. If it were solely a Davis POU, then this same faction would direct their angst against people in their own community and the result would be as I described above. It seems that the only real option is the status quo …for just about everything in Davis.

        2. Davis’ well known habit of waffling and reneging on agreements with outside agencies and municipalities makes you a less than desirable partner in any such venture, imo.

        1. Clarify for me Matt, because I could very well be mistaken by this. I thought the move to a Community Choice Aggregator (CCA) would not result in a significant drop in the consumer price of electricity, this drop would only occur we moved to a Public Owned Utility (POU). Do I have this wrong?

          1. If I heard the presentation correctly, we would save considerable money with both options, but POU saves even more than CCA. The presentation on December 10th stepped through both CCA and POU.

    3. Nancy, the ownership of the water rights, and the water treatment assets, and the water distribution assets all rest with the public. There is no private ownership of any portion of the Davis Water system.

    4. We’ve been round and round this debate for years; private management and operation IS privatization. Of course we know that the water is not owned and that the city has water rights; but we also know that there are shareholders of the private management/operating companies and that the rate increases are needed to return a profit to the investors. That’s not a “not-for-profit” public utility model.

      2. Nancy, the issue you raise makes a lot of sense in a delivery model other than DBO, which locks in the contractual pricing for a 15-year period. So the key event is whether to accept the bid of the DBO firm on the front end.

        As part of the WAC process it was incumbent on the WAC members to research the viability of the DBO model. As part of my personal due diligence in September 2012 I contacted the City of Seattle employee who oversees the two Seattle DBO facilities, who coincidentally is a UCD grad. I spoke to him at length about the workmanship, professionalism and cost-effectiveness of CH2MHill’s involvement with Seattle’s two projects. He informed me that Seattle was quite pleased with the work that CH2MHill had done for, and continued to do for Seattle.

        He also indicated that the City had conducted an exhaustive analysis in the recent past of whether it was cost effective for the City to convert either of the plants to public operation. Their analysis was that such a conversion would not be cost effective, because the costs of operation would be virtually identical, but public operation would effectively void the long-term design and build warrantees that exist under the terms of the current DBO contract.

        That kind of locked in pricing with high quality of service is a proposition that would be very hard to replicate with public employees.

  5. I’m serious. My feeling is “Yes, in my backyard!”
    The technology exists and the numbers don’t support any other solution.

    Nuclear power is the safest of all electricity production systems.
    World wide they account for the fewest deaths of any energy producer.

    The US is way behind the curve on nuclear power.
    I think this is because we haven’t stayed informed.

    For more info go to http://www.thesciencecouncil.com

      1. When we get to the actual point that Gen IV reactors have been approved by the government, and installed at least one or two other places in the US, then maybe local municipalities can seriously consider them. The technology may be there, but the development and implementation isn’t.

  6. Davis Progressive wrote:

    > how does he experience of SMUD validate or invalidate your concerns?

    SMUD has great rates, but remember that they didn’t just buy everything at 2014 prices.

    My best friend and brother in law both have Tahoe cabins that have been in the family since the 1950’s (when they were both bought for under $25K). They both have a family member that get’s paid something to manage the cabin and pay the bills. Anytime a family member wants to use the cabin they pay about $50/night to cover the expenses.

    Just like I won’t be able to charge my family $50/night if I buy a lake view cabin in Tahoe today for $1 million Davis won’t be able to charge the same rates as SMUD if they buy the infrastructure from PG&E today.

    The Davis politicians will get a lot more money (and favors to pass out) and in the end will probably not face a big backlash when they point out that while everyone is paying more we are now “greener” without PG&E (thanks to a new solar station that converted a big donor’s hayfield in to $10 million in cash)…

    1. SOD, “The Davis politicians will get a lot more money (and favors to pass out) and in the end will probably not face a big backlash when they point out that while everyone is paying more we are now “greener” without PG&E (thanks to a new solar station that converted a big donor’s hayfield in to $10 million in cash)…”

      You hit the nail square on the head, by the time our Davis liberals, climate alarmists, the NRC, etc. all get involved you can bet that 20% savings will be long gone and it will end up costing everyone more than if we had just stuck with P.G.E. Reminds me of Obamacare and the $2500 ins, cost savings that Obama promised us all as we now watch our insurance costs and taxes go higher.

      1. I agree with this.

        Note that the first justification is “control”

        Why would we cede control of anything this important and potentially explosively expensive to a city that has absolutely screwed up our fiscal house?

        It is a terrible idea. We have not demonstrated anything close to a level of competency that would be required to implement a POU.

  7. keithvb wrote:

    > Nuclear power is the safest of all electricity production
    > systems. World wide they account for the fewest deaths
    > of any energy producer.

    Yet most people don’t want nuclear power because they know (from watching TV) that we will get three eyed fish:

    http://blogs.sfweekly.com/thesnitch/2009/01/science_is_blinky_the_simpsons.php

    Don’t forget that if a Tsunami storm surge comes over the coast range (or down Putah Creek) it could wipe out a nuclear plant killing us all leaving nothing but three eyed fish…

  8. Right. The City is doing such a great job with water and sewage and fire services, that we could expect them to do a more efficient job than PG&E providing energy? Fat chance. Dream land. Denial. Blinkers.

  9. If we go local control you know the push will be to go to green energy and that costs more than conventional resources like natural gas to produce energy. So tell us again how we’re going to realize a 20% savings?

  10. Here you go, Manhattan Institute for Policy Research:

    “That said, our analysis of available data has revealed a pattern of starkly higher rates in most states with RPS mandates compared with those without mandates. The gap is particularly striking in coal-dependent states—seven such states with RPS mandates saw their rates soar by an average of 54.2 percent between 2001 and 2010, more than twice the average increase experienced by seven other coal-dependent states without mandates.

    Our study highlights another pattern as well, of a disconnect between the optimistic estimates by government policymakers of the impact that the mandates will have on rates and the harsh reality of the soaring rates that typically result. In some states, the implementation of mandate levels is proceeding so rapidly that residential and commercial users are being locked into exorbitant rates for many years to come. The experiences of Oregon, California, and Ontario (which is subject to a similar mandate plan) serve as case studies of how rates have spiraled.

    A backlash may result that could even imperil the effort to protect the environment. Some of the renewable-energy projects being built in California are so expensive that “people are going to get rate shock”

    http://www.manhattan-institute.org/html/eper_10.htm

    1. I am shocked to learn that Bryce, holder of a BFA from U.T. knows absolutely nothing about what he writes, being fed ideas for copy from The Manhattan Institute, who’s main goal is promote “Fracking,” the extremely destructive practice of hydraulic fracturing to extract natural gas and oil from underground deposits, using highly dangerous chemicals, which subsequently find their way into ground water.
      A sterling reference, indeed.
      Biddlin ;>)/

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