At its fifth anniversary, Sonoma Clean Power has much to celebrate: Millions of dollars in savings for customers, a notable drop in greenhouse gas emissions for the county and five profitable years.
Started by Sonoma County and city officials on May 1, 2014, as a way to reduce greenhouse gas emissions and as a local competitor to Pacific Gas & Electric Co., Sonoma Clean Power has emerged as an influential player in California’s tumultuous electricity market.
In a state rocked by natural disasters, ambitious climate goals and PG&E’s bankruptcy, the local team that runs Sonoma Clean Power vows to restructure electricity, with all the opportunity and risk that entails.
Meanwhile, they’re selling electricity cheaper and cleaner than PG&E.
“Sonoma Clean Power is the biggest single step Sonoma County has ever taken for climate change,” said CEO Geof Syphers, who has headed the agency from the start.
Sonoma Clean Power is a new kind of energy agency run by locally elected officials who buy electricity and sell it to most of the people in Sonoma and Mendocino counties, with delivery and billing by PG&E.
The monthly bill that Sonoma Clean Power’s residential customers get from PG&E shows “Sonoma Clean Power electric generation charges” and, separately, “PG&E electric delivery charges.”
The state legislature approved this new kind of electricity agency called community choice in 2002 mainly so local governments could offer an alternative to investor-owned utilities.
It’s a revolutionary idea whose outcome is uncertain, a giant experiment that moves millions of dollars of responsibility from the hands of PG&E and its shareholders to the shoulders of Sonoma Clean Power and its member cities and county.
Traditionally, the people who tangled with the notoriously volatile and unpredictable energy markets have been sophisticated utilities with monopoly power, Wall Street-savvy traders and shareholders to help take the losses.
Now in Sonoma County that job falls to Syphers and his crew, sitting on the fifth floor of a building overlooking Old Courthouse Square in Santa Rosa.
The last time California regulators experimented with deregulating their electricity markets, 1998-2001, electricity prices soared, blackouts roiled the state, PG&E filed bankruptcy and the market collapsed. Ratepayers today are still paying for that expensive failure, almost $2.50 a month for the typical residential bill through the end of 2020.
Critics worry a similar experience could upend the community choice industry, and the state’s climate goals, if the new local agencies can’t meet the challenges of operating in a deregulated electricity market.
But Syphers sees a different outcome this time.
“We’re proving we can meet state goals much faster than the existing model,” Syphers said. “I think the future for PG&E is in renting their wires.”
Greener and cheaper than PG&E, for now
Today Sonoma Clean Power has about 224,000 customer accounts, or about 87 percent of eligible electricity users in Sonoma and Mendocino counties let Sonoma Clean Power buy their electricity instead of PG&E. Here’s how Sonoma Clean Power’s customer profile breaks down: 47 percent residential, 30 percent small/medium commercial, 20 percent large commercial/industrial, 3 percent agriculture and a little street lighting.
(Healdsburg and Ukiah do not participate because they have their own municipal utility. A municipal utility buys and sells power like Sonoma Clean Power, and it also delivers the power and sends out the bills like PG&E.)
Most of Sonoma Clean Power’s customers buy its standard CleanStart product, which currently is $6.94 cheaper for an average monthly bill than PG&E, while 1,851 customers pay about $13 a month more than CleanStart to buy EverGreen, which is 100 percent green and local.
When customers buy clean power, they aren’t paying to receive clean energy, because electricity flows randomly on the grid. Instead, they’re paying clean power plants – instead of fossil fuel plants – to run. That’s what helps reduce greenhouse gas emissions.
Sonoma Clean Power guarantees its CleanStart customers that 49 percent of the money they spend for electricity buys state-approved renewables. That’s up from 33 percent when it started five years ago. PG&E is at 39 percent, up from 22 percent five years ago.
Syphers said his agency has also boosted the local economy in many ways. For example, he said Sonoma Clean Power’s lower rates have saved its customers more than $70 million in its first five years, and the agency has donated to many community causes, including $1 million to victims of the 2017 fires.
Sonoma Clean Power got started when county officials decided to start a community choice agency to help them and their cities meet their greenhouse goals. Those goals were to reduce annual greenhouse gas emissions to 25 percent below 1990 greenhouse gas levels by 2015.
That meant limiting annual emissions to 2.6 million tons, including limiting electricity to 459,060 tons, according to the Center for Climate Protection in Santa Rosa that tracks Sonoma County’s annual greenhouse gas emissions.
In 2013, the year before Sonoma Clean Power started delivering power to customers, annual electricity emissions were 683,000 tons. By 2016 they had fallen to 297,000 tons, with the Center for Climate Protection giving much of the credit to Sonoma Clean Power.
Mission more than accomplished.
Sonoma Clean Power ended its fifth fiscal year June 30 with a string of profits that totaled $90 million over the five years – which the agency calls “change in net position”— and ended with an estimated $13 million in 2019. Revenue that was $96.6 million in 2015 is expected to be $180 million in 2019.
Sonoma Clean Power’s income comes from ratepayers, not taxpayers. It has no debt.
Reserves set aside to cover operations are estimated at $63 million and climbing. Moody’s Investor Service, which analyzes financial strength, recommends operating reserves equal to six months of expenses, or roughly $83 million, because power is a “potentially highly volatile business” with sometimes “dramatic” shifts in the need for working capital.
Growing reserves is a controversial decision with people who want Sonoma Clean Power to finance green energy projects or reduce rates further, but one applauded by fiscal conservatives.
“If this were a business, we’d be jumping for joy. To put that kind of money in reserves is outstanding,” said Paul Brophy, founder of the Santa Rosa-based geothermal research firm EGS Inc. and a Sonoma Clean Power adviser.
But the good news is only part of the story. Considerable uncertainty lies ahead.
One problem is Sonoma Clean Power’s uncertain relationship with PG&E and the California Public Utilities Commission, which regulates the state’s three major utilities. Both are reluctant to hand over responsibility for the reliability of the grid to newcomers.
Further, Sonoma Clean Power’s success has rested mainly on selling electricity that is greener and cheaper than PG&E. But with wildly changing market and political conditions, those favorable circumstances are not guaranteed. That’s a problem, because customers that become disenchanted with Sonoma Clean Power can simply return to PG&E.
“The real risk to CCAs is getting out of whack with PG&E,” said founding general counsel Steve Shupe in a presentation on risk.
For example, in June some cities in Ventura County began moving their largest accounts from their community choice agency back to the area’s utility, Southern California Edison, when several unexpected factors drove the agency’s rates for large users well above Edison, according to the Ventura County Star.