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Renewable law enhances value of SSJID power by 70%

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POSTED April 23, 2013 1:53 a.m.

Dropping power prices may actually make it more feasible for South San Joaquin Irrigation District to leverage Tri-Dam Project receipts to deliver on a promise to reduce power costs by 15 percent assuming they get past the San Joaquin Local Agency Formation Commission.

That’s because 100 percent of the 120 plus megawatts that is produced jointly by the Oakdale Irrigation District and SSJID through Tri-Dam is green energy. As such a state mandate that requires portfolios of energy providers to have a set percentage of the electricity from renewable sources that are 30 megawatts or less means the SSJID will benefit through government established renewable charges that come to $35 a megawatt hour.

If SSJID were in the retail power business today, it would secure most of their power at $50 per megawattt on the open market and then be able to sell at least 48 megawatts Tri-Damm generates to other power providers who must have renewable energy in their portfolios at $85 per megawatt hour. That extra $35 per megawatt will supplement Tri-Dam revenue.

It is the byzantine economics of electricity driven by government mandates that appears to be prompting the LAFCo staff to approach the SSJID application with trepidation. Approving the application would open the door for SSJID to acquire the PG&E system serving retail customers in Manteca, Ripon, and Escalon.

LAFCo Executive officer James Glaser said Monday his staff lacks the expertise of dealing with such an application that SSJID submitted to the agency some 44 months ago. And instead of relying on data provided by SSJID, the agency wanted an independent analysis to make sure whatever decision the LAFCo board made could withstand a challenge in court.

“It’s a battle between two titans,” Glaser said of the struggle of SSJID to enter into retail power business. PG&E and other major utilities encouraged such a move in 1996 for irrigation districts in exchange for being de-regulated  by the California Legislature.

Slowing down the process at one point was a new state law that allowed for community aggregation to reduce power costs through existing utilities. Instead of taking over the PG&E system, SSJID and other government agencies were given the legal option of underwriting lower power costs. In SSJID’s case that would be using Tri-Dam receipts.

Glaser said they wanted the community aggregation study to reduce the potential for legal challenges by PG&E even though they were aware SSJID was not going to pursue such an option.

The SSJID board has gone on record against community aggregation noting the savings to customers within the district would be significantly less than $12 million a year through a 15 percent rate reduction. Also, without being in control of the system, the district would be unable to lower rates even further as they would if they bought an upgraded the system and then retired the bonds. It is exactly what SSJID did with Tri-Dam. After the bonds were paid off, SSJID’s share of the revenue from Tri-Dam shot up from several million dollars a year to as much as $15 million annually. Increased savings would be applied to lower rates and not go to profit, according to Shields.

Also as the district users grew, the amount of savings per household would shrink proportionately under community aggregation.

Glaser also indicated SSJID has been slow with its response to issues related to a municipal service review that must be completed before the application to provide retail power can move forward. Shields believes the MSR review per se is stepping over established parameters by getting into the economics beyond whether simply SSJID is capable of being the retail power provider and doing so at a significantly lower rate than PG&E.

Regardless, Glaser said the ball is in SSJID’s court in terms of whether to underwrite a third LAFCo requested study of their application by PA Consulting.

Glaser said the market has changed since the study was done more than three years ago. He added if SSJID wanted to push its application forward using the old numbers and try to convince the commission it would still work without benefit of another study it was up to them.

Shields agreed the market has changed. He said not only does the lower power cost work to SSJID’s advantage but so does the state mandate on renewable that assures SSJID essentially a 70 percent mark up on every megawatt they sell from Tri-Dam based on today’s lower wholesale power prices.

With prices dropping, that $35 charge per megawatt hour the state set become an even higher percentage of the actual market cost of the power sold.

If SSJID opts to go for another study, Glaser said LAFCo could not assure it would be processed by a set timetable.  He declined to speculate about a specific timetable but given the various boards involved, the study itself, and the review required by lawyers and independent analysts it could easily add a year and send the cost of the LAFCo application for SSJID toward the $1.9 million mark.

The SSJID is paying for the independent studies as well as the consultants and lawyers that LAFCo staff hires to analyze those independent studies.

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