Hermosa Beach moves closer to joining energy program

Hermosa Beach City Council members voted last week to continue pursuing membership in a community-choice aggregation (CCA) program, touting the potential benefits but taking more time to consider its risks and inform the community.

Although all five of the council members spoke favorably of a CCA at various points throughout the meeting, last week’s decision does not commit the city to joining any or forming a CCA,  under which local governments, instead of utilities like Southern California Edison, buy power wholesale and sell it to their constituents over existing infrastructure. Along with further research by staff, the city plans to establish a community advisory board to collect resident opinion on the issue. An ordinance to officially join or establish a CCA is likely still months away.

“Even if the city is inclined to join one, it doesn’t mean we’re just going to do it. We’re not committed, I’m certainly not committed, to joining-a-CCA-no-matter-what. If it doesn’t vibe with our community, then I’m okay,” with not joining, said Councilmember Stacey Armato. (Armato was sworn in as mayor pro tem the following evening in the regularly scheduled mayor rotation ceremony; Justin Massey ceded the mayor’s position to Jeff Duclos.)

Council members stressed the lack of finality in part because previous discussion of the program has produced considerable skepticism from community members, including the concern that joining a CCA would involve the city building its own power plant. Joining the programs does not require cities to build their own power-generation facilities; instead, cities buy power from existing producers. Delivery over the grid and billing would still be handled by the local utility. (Many California cities participating in CCAs have, however, invested funds generated by the programs into local renewable energy projects.)

CCAs were authorized by state legislation in 2002 out of the idea that increased local oversight could contain energy prices, which had spiked during the electricity crisis of 2000-01. According to the California Energy Commission, publicly owned utilities, like the Department of Water and Power serving the city of Los Angeles, have rates that are on average 15 percent lower than those of investor-owned utilities, like Edison. Since 2010, when Marin Clean Energy became the first operational CCA in the state, dozens of cities have joined CCAs, and the program has evolved into a way for cities to boost the share of renewables in their energy profile, along with lowering costs in many cases.

This combination proved enticing to council members, who focused more on the details of joining and implementing particular programs than the merits of CCAs in general. Last week’s vote instructed staff to continue studying multiple competing proposals for a CCA, but a majority of council members seemed most favorably disposed toward a proposal from Los Angeles Community Choice Energy (LACCE), a CCA set up this year by Los Angeles County. Council members said the county program involved fewer risks than the smaller alternative proposals, which included the city forming its own CCA, or joining with one established by the City of Lancaster.

According to a presentation from Matt Skolnik, program manager for LACCE, the county’s CCA would operate as a joint-powers authority. City Attorney Michael Jenkins said this meant that, like the limited liability of a corporation, only the assets of LACCE, not those of its member cities, could be reached in a lawsuit.

The statement from Jenkins is unlikely to assuage CCA opponents in Hermosa. Hermosa first addressed joining a CCA in 2014 and has discussed it, by staff’s tabulation, at 11 public meetings. Environmental Analyst Kristy Morris said, “We are probably the city in Los Angeles County that has done the most outreach.” But the flow of information has not necessarily changed hearts and minds. During hearings over the city’s amended General Plan earlier this year, CCA was routinely cited as an example of risky environmental overreach by a council run amok.

This dynamic has been reversed in other cities, where council members have had to put the brakes on the progress of CCAs amidst a lack of public input. When Skolnik gave a similar presentation to the Manhattan Beach council early in the fall, several council members there were ready to join LACCE that night, before Councilmember Steve Napolitano, who was familiar with the program from his time as a chief of staff for former county Supervisor Don Knabe, urged a pause to inform the community. When the issue returned to the Manhattan council last week, council members appeared confused at the lack of outreach done in the interim; staff responded that the complexity and newness of the issue limited the purchase it found in the minds of residents. Citing the example of Hermosa, Councilmember David Lesser seemed to urge staff to get out in front of the issue.

“There’s going to be surprise, confusion, and concern: We have seen that in adjacent communities when they’ve sought to move forward with CCA. There’s a good story to tell here, but we need to be proactive in telling it,” Lesser said. (In a telling difference, Manhattan’s council then unanimously approved a resolution to join LACCE, “even though” Lesser said, “we don’t have all the answers at this stage.”)

Despite the plan to continue community outreach in Hermosa, some on the council showed signs of exasperation. Massey took the most forceful stand, saying that the conversation over CCAs had been “polluted with misinformation,” and cited a letter Hermosa received about the city of West Covina’s decision not to join a CCA.

“We got a communication characterizing the decision in West Covina last night this way: ‘Victory against the New World Order: West Covina says no to Agenda 21 takeover of energy,’” Massey said quoting the letter, which was apparently referring to conspiracy theories about a United Nations-driven plan to eliminate nation states in the name of environmentalism.

But not all objections to CCAs were of the tinfoil-hat variety. A letter by former Council member Carolyn Petty pointed out that projected cost-savings from by CCAs depended on estimates for the Power Charge Indifference Adjustment (PCIA) fee. The PCIA fee is a state-mandated cost assessed to CCA ratepayers to ensure that people remaining in investor-owned utilities do not face higher rates because of ongoing costs borne by those utilities.

Some CCA projections do take into account a significant rise in the PCIA. According to an implementation plan from LACCE, annual PCIA costs would jump from $25,429,976 in 2018 to $89,025,139 by 2020. These jumps mean that, between 2020 and 2022, LACCE would run at a deficit. These costs will eventually level off, LACCE predicts, and decrease to $61,719,692 by 2027, the final year of included projections. The county’s plan forecasts a total surplus of $6,736,816 over the first 10 years.

But the exact amount of change in the PCIA is uncertain, and utilities like Edison are vigorously lobbying for increases. If it were it to rise more than the county projects, it could theoretically push the proceeds into the red, and make CCAs less competitive with traditional utilities.

The state utilities commission, which sets the PCIA figure, is expected to issue a ruling in July of next year on the fee. A spokesperson for the commission said Tuesday it was too early to provide forecasts for new PCIA figures.

Petty argued that it would be imprudent to join or create a CCA amidst this uncertainty. This was especially true, she wrote, given that under state law, the residents of a municipality are automatically enrolled in a CCA and would need to opt out to continue being served by Edison.

These concerns, however, have not slowed the county program’s progress. After getting approval from the Board of Supervisors earlier this year, LACCE has grown rapidly. Fourteen cities have joined or signaled their intent to do so, including Manhattan and Redondo Beach earlier this month. Skolnik said that while the county was not certain about exactly how large the program would get, he said that a cohort of more than two dozen cities was possible, which would make it one of the largest CCAs in the state.

Part of the reason for the recent growth is a deadline of Dec. 27 set by LACCE to join without a fee. At a joint-powers meeting that took place after last week’s council meeting, the LACCE board decided that fees for joining after the deadline would be imposed on a case-by-case basis.

Gary Gero, chief sustainability officer for L.A. County, said that the decision would depend on the size of the city, and LACCE’s ability to fund the city using “existing resources” available at the time it sought to join. For a city the size of Hermosa Beach, Gero said it was possible that there would be no fee to join after deadline. Cities joining after the deadline, however, would not have a say in several important early decisions, including potentially setting a policy about procuring nuclear power.

If Hermosa were to join LACCE, it would vote along with other members on how to operate it. Most items would be decided by a majority vote, with some needing a two-thirds majority. Some on the council raised the prospect that Hermosa, as a relatively small city, would have little influence over how LACCE operates.

“Hermosa is just going to have one vote. Are we going to be heard?” Armato asked. Skolnik countered that the larger LACCE got, the harder it would be for one coalition of members to force an agenda on others.

In the event that Hermosa was to join LACCE and later decide to leave, it would incur at least some costs. In her letter, Petty cautioned that a boost in the PCIA figure would likely drive CCAs to increase their exit fees, leaving cities trapped.

The LACCE board partially addressed this issue in a meeting following last week’s council meeting. According to Gero, the board approved an amendment to the joint-powers agreement requiring that, in the event a member decides to leave the CCA, the board must make its “best effort” to minimize fees, which could include selling the power already procured on a city’s behalf.

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