Samuel Golding’s Insight Into the South Bay Clean Power Business Plan

2017-02-16_15-48-44As the primary author of the South Bay Clean Power Business Plan, Samuel Golding, of Community Choice Partners, has been consulting for our SBCP Working Group since the summer of 2016.  Here’s Samuel’s guest post on the models employed for the best practices that drive the strategic direction and planning for South Bay Clean Power’s CCA:

With Great Power Comes Great Responsibility

South Bay Clean Power is BIG. Two times the size of the largest CCA under implementation in Northern California. And when all of Los Angeles County goes CCA, almost one-third of Southern California Edison’s current load will be served by public power:

picture1

One of the most important takeaways from our research, analysis and planning is that with this scale comes the responsibility to design an appropriate kind of CCA. The launch process and routine that has worked for smaller CCAs will not work for South Bay Clean Power. Our Business Plan details the design and process that will work, based on proven models and best practices.

The main issue is that South Bay Clean Power should not rely on a primary power supplier at the outset, as other CCAs have done.  Instead, the program must diversify its sources and suppliers of power — from Day 1. The CCA also need to work with Southern California Edison to make sure that the transition goes smoothly. Both parties share the responsibility to make that happen — proactively and collaboratively – because South Bay Clean Power is so large.

The ability to do all that practically means contracting for a full suite of energy risk management services – and doing so based on the proven model of capabilities that established public power entities employ. Growing these risk management capabilities incrementally over a period of years, like smaller CCAs have done, is not a viable option for South Bay Clean Power — the CCA needs to launch with those capabilities in place.

Reliance on Proven Models

The starting model for the South Bay Clean Power Business Plan’s design is that of the Redwood Coast Energy Authority (RCEA) in Humboldt County. That CCA used a streamlined implementation process and achieved a significant evolution in local control and energy risk management capabilities for CCAs. We have applied numerous best practices and lessons learned to further refine this model, particularly in expanding Distributed Energy Resources capabilities. Based on the direction offered in this Business Plan, the cost of implementation can be cut in half while the program development and launch timeline is rapidly accelerated.

The Redwood Coast Energy Authority issued a single RFP for all services to launch the CCA, and required contractors to work at-risk (without payment) until after the program was serving customers. By using performance-based contracting, the CCA allowed expert contractors with proven track records in managing public power agencies to:

  1. Apply their specialized expertise to minimize expenses and accelerate the launch timeline;
  2. Provide a program structure that closely mimics the capabilities of established public power utilities.

Specifically, Redwood Coast Energy Authority’s point of difference and chief advantage over all other CCAs to date is their employment of a non-profit energy services provider owned by a group of municipal utilities to provide comprehensive energy risk management services for the CCA.

This non-profit energy services provider has a demonstrated track record in providing a full suite of energy risk management services to serve its municipal utility members and other clients. Nothing is outsourced — and as a result, RCEA’s energy services provide an equivalent level of sophistication and flexibility (in energy planning, procurement, contract management, market operations and settlements) as compared to the Investor-Owned Utilities. And they do so in a transparent and integrated fashion, on par with how the utilities’ internal business model is structured:

energy-services

An additional benefit of this approach is that it allows South Bay Clean Power to have full transparency and oversight into every power plant that the CCA will contract with, and how all aspects of its power operations will be conducted.

This transparency and comprehensive approach will allow South Bay Clean Power to fully integrate Distributed Energy Resources — such as energy efficiency, distributed renewable generation resources (e.g. rooftop solar photovoltaic), energy storage, electric vehicles, and demand response technologies — into the CCA’s managerial and operational activities and to maximize local workforce and economic development by doing so.

Minimizing Upfront Costs & Government Financial Liability

After detailing five CCA case studies, the Business Plan’s recommended financing strategy combines:

  1. The Redwood Coast Energy Authority’s contracting approach (of issuing a single RFP for Services to minimize and outsource implementation costs to contractors); with
  2. Silicon Valley Clean Energy’s strategy of negotiating power supply financing later during the implementation process (to yield competitive financing that requires minimal to no guarantees from local governments).

Under this recommended process, the local governments involved with launching South Bay Clean Power will limit their financial liabilities and expenses to:

  • Minimal direct staff and legal costs associated with Joint Powers Agency (JPA) formation and RFP issuance, bid evaluation and contract negotiations, and for overseeing implementation activities;
  • Liability for contractor expenses during implementation, beginning only after the point in time when local governments have accepted the CCA Technical Study produced during the initial design phase (from that point on, implementation costs are tracked and either repaid as a lump-sum if the contract is canceled by the CCA prior to program launch, or otherwise repaid in regular installments over the course of the first few years of operations).

Power supply financing will be negotiated by the CCA’s chosen energy risk management contractor later during the implementation process. Based on our analysis of CCA case studies, this portion of financing will be negotiated in an expeditious manner and should require little, if any, guarantee from local governments.

Contractors will be relied upon to self-provide financing required for all other activities and requirements associated with their respective implementation activities.

Regional Economies of Scale without sacrificing Local Control for CCAs

Without question, there are financial and strategic advantages that accompany the economy-of-scale that a county-wide JPA would provide — however, bigger is not always better when it comes to CCA governance. The overall effectiveness, quality of discourse, democratic inclusiveness and ultimate stability of the program may be compromised if the number of governments involved exceeds the number of board seats that would be practical, and if the policy objectives of the diverse governments involved are not in alignment.

This problem is particularly relevant for South Bay Clean Power, as it weighs the option of forming its own JPA or to join with the County of Los Angeles to form a larger program. There are 82 eligible cities and the County itself in Los Angeles County, and a governing board of this size would be practically unworkable.

To provide a solution based on proven best practices, this business plan details the formation of a regional Joint Powers Agency (JPA) made up of multiple CCAs, and details a governance model under which:

  • Multiple autonomous and sovereign CCAs are formed by groups of ~10 to 20 cities with similar policy goals throughout Los Angeles County (as JPAs, like South Bay Clean Power);
  • Each CCA determines its own independent power portfolio choices, rates and program elements, and each also retains full control of its financial policies, revenues and reserve funds.
  • These CCAs collectively create the “Regional JPA of CCAs” in order to provide significant economies of scale for each CCA member by standardizing and sharing the aggregated cost of required services, streamlining startup financing, engaging in joint-planning and joint-procurement exercises, accelerating the credit-rating process for bond issuances, and coordinating Distributed Energy Resources initiatives as well as regulatory and legislative engagements.

This separation of administration (in the Regional JPA) and policy origination (in the local CCAs) is based on two other public power agencies in California that have long operated under very similar arrangements:

  • The Northern California Power Agency (NCPA): a JPA of fifteen municipal utilities and cooperatives;
  • The Southern California Public Power Authority (SCPPA): a JPA of twelve municipal utilities and irrigation districts.

The organizational chart below shows the governance relationship between the Regional JPA and CCA Boards, role of Citizen Advisory Committees and Executive Directors, and key staff positions and department activities in management and operational functions:

jpa-of-cca

As newly-formed entities, each member CCA will commence with a minimum of staff and resources. Each member CCA will have a governing board of elected officials, a volunteer committee of citizens, and an Executive Director staff position (who serves on the governing Commission of the Regional JPA).

By pooling resources, the CCAs will be able to staff the Regional JPA more quickly, and provide more expert services for the CCAs, than any one program would be able to do on its own. The chart below shows the anticipated transition of responsibilities from contractors to staff as the Regional JPA grows over the first three years of program operations:

picture2

As each member CCA earns net revenues and grows a reserve fund, discretionary budget will be available to develop customized programs or to hire additional staff to provide capabilities beyond those offered through the Regional JPA. The CCA’s Executive Director will likely determine which functions are more efficiently conducted through the Regional JPA, and which would be more cost-effective or appropriate to conduct ‘in-house’ for the CCA.

Concluding Remarks

No other state has been as successful as California in creating effective Community Choice programs. Our State’s CCAs are financially stable, long-term and empowered agencies that are fundamentally aiming the arc of power planning and operations steadily towards renewables and Distributed Energy Resources.

The launch of each new CCA presents innovations in design and opportunities to apply lessons-learned. The timing of this initiative is fortuitous on many levels, as the Redwood Coast Energy Authority recently pioneered the most impressive CCA model to date, which we have refined and proposed here for South Bay Clean Power. Simultaneously, more companies have entered the CCA market to provide best-in-class services, and the availability and cost of renewable energy on the market has never been more favorable than it is today.

We wrote this Business Plan as an explanatory, step-by-step guide that — when combined with our draft Joint Powers Agreement and forthcoming RFP for services — will allow local government staff, elected officials, and the citizen advisory stakeholders of South Bay Clean Power to launch the largest, most scalable and most advanced CCA to date with a minimum of effort or upfront expense.

It is our intent that these recommendations launch a CCA with the powers necessary to achieve the energy policy goals adopted by the local governments and citizen stakeholders of South Bay Clean Power. Your leadership, and commitment to progress and local control, deserves nothing less.

Respectfully,

Samuel Golding (golding@communitychoicepartners.com)

2 Comments on “Samuel Golding’s Insight Into the South Bay Clean Power Business Plan

  1. Pingback: This is Our South Bay Clean Power Business Plan | South Bay Clean Power

  2. Pingback: This Is Our South Bay Clean Power Business Plan – Clean Power Exchange

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: