(UPDATED NOV. 20) SANTA ROSA - Sonoma County’s startup public power agency has signed its first power supply contract with Baltimore, Md.-based Constellation Energy, a deal that agency staff announced will allow average retail rates that are lower than Pacific Gas & Electric Co.’s projected rates in 2014.
The contract with Constellation, a subsidiary of Chicago-based Exelon, will supply the majority of electricity for Sonoma Clean Power’s customers over its three-year term. While retail rates won’t be available until January, the deal represents a significant milestone for the agency as it prepares to begin service to an initial group of customers in May of 2014.
"We're quite confident that we can beat PG&E's rates and provide real environmental benefits right from day one," said Geof Syphers, CEO.
The decision followed the establishment of a framework for negotiations by the agency’s governing board this month, setting a ceiling for average retail costs that would be equal to or less than the 9.72 cents per kilowatt-hour projection that PG&E most recently shared with the California Public Utilities Commission.
Staff had asked for that preapproval to allow for quick action in a wholesale power market that can change significantly on a day-to-day basis. Mr. Syphers joined Sonoma Clean Power Authority Vice Chair Mark Landman in signing the agreement.
In a separate effort, agency staff is also asking for approval during the board’s Nov. 21 meeting to approve a 10-year contract for geothermal power from Calpine Energy Service. The company, which operates a network of 15 geothermal plants at The Geysers along the Sonoma and Lake county border, would supply around 10 percent of the agency’s power needs over the contract term.
Sonoma Clean Power is anticipating the need to purchase nearly 400,000 megawatt-hours of electricity during its first year of operation, and just shy of 500,000 by 2016.
Mr. Syphers declined to reveal the wholesale price per kilowatt-hour in the Constellation contract, citing ongoing competitive negotiations with Calpine and future energy providers. While the final energy cost depends on that wholesale rate, the agency has budgeted $27.6 million for electricity purchases in 2014 and $74.6 million for 2015 -- its first full year of operation. That number rises to $114.8 million by 2017, according to material presented with the agency's fiscal year budget on Aug. 15, 2013.
Exelon's $7.9 billion purchase of Constellation Energy was completed in 2012. The company sells electricity to utilities and directly to consumers, with Exelon (NYSE: EXC) earning $18.7 million in revenue for the fiscal year ended Sept. 30, 2013. Exelon has electricity production capacity of around 35,000 megawatts.
Constellation has some business customers in California, but the Sonoma Clean Power contract would represent its first residential customer pool in the state, according to information from the company.
Sonoma Clean Power's electricity mix is required to be from at least 33 percent renewable sources, a strict definition that does not include low-carbon sources like hydroelectric. Those sources currently account for around 20 percent of PG&E's portfolio.
That definition does allow for some renewable energy “credits,” a mechanism in which renewable energy producers are able to sell their electricity and the renewable attribute of that power separately. The contract includes no power from nuclear sources, with 70 percent considered “carbon-free.”
The agreement also includes a provision for Constellation to develop custom pricing structures for individual customers at Sonoma Clean Power's request. It is a concept that has drawn the interest of heavy power users in Sonoma County, including a wine industry that sees the majority of its power use during the busy harvest months.
"It's a bit conceptual at this point, but the rules in CCA allow for direct access," he said, noting some ratepayers including Sonoma State University have entered into such agreements in the limited window allowed in California. "There are customers that have a big enough energy bill every year that it's worth our time and theirs to go out to the market, maybe with a pool of those customers, and negotiate another contract on their behalf."
"The reality is, PG&E could be an eligible bidder in that pool," he added.
NRG Energy and Direct Energy were two other wholesale power providers under consideration, with competitive talks that lasted until the final hour before approval, Mr. Syphers said.
Sonoma Clean Power purchases electricity and delivers it to its customers over the grid largely maintained by PG&E. It the second “community choice aggregation” agency in California after MCE Clean Energy -- formerly Marin Clean Energy.
Mr. Syphers noted that the competitive nature of the primary supplier agreement differed from the approach seen in Marin, and would likely serve as a model for other CCAs under development in California.
The Sonoma County Water Agency began researching the possibility of launching a CCA in California in March of 2011. That agency spent around $1.2 million laying the groundwork for the agency, and will ultimately be repaid through Sonoma Clean Power's revenue.
The agency will launch to around 20,000 customers in 2014 - largely commercial ratepayers - and gradually roll out to around 80 percent of Sonoma County ratepayers in three years. Participants will be allowed to remain with PG&E, but will be enrolled automatically if no “opt out” action is taken.
Retail rates are expected to be released in January. For MCE customers in Marin County and the City of Richmond, rates currently average 1.15 percent more than PG&E for residential customers consuming 500 kilowatt-hours per month, or $79.04. For commercial customers consuming 1,225 kilowatt-hours during summer, rates currently average 3.1 percent less, or $253.66 per month.
The city governments of Rohnert Park, Petaluma and Cloverdale have chosen not to allow the agency to serve their residents and businesses at launch. Those cities will be given an opportunity to consider joining in 2014. Healdsburg operates its own utility, and is considered out of contention for joining.
