Hope the Mayoral Hopefuls Are Watching What They’ll Inherit!

Op ed by Haney Hong

Recent “electric fever” on community choice aggregation has danced right past some important taxpayer protections that warrant a closer look!  

We at the San Diego County Taxpayers Association have been keeping a close eye on the movement by local municipalities toward community choice aggregation (CCA).  A CCA is where cities team up to purchase energy collectively for citizens -- taking over this responsibility away from SDG&E.  

The goal is praiseworthy: to deliver more renewable energy — and at lower rates — than the utility.  The feasibility studies by cities claim that they’ll be able to save customers money on their power bills, even with the costs of exiting old power contracts.

The reality is this.  Whether these entities save money will depend a lot on how they’re operated.  And like any enterprise, it’s critical to evaluate risk honestly and prepare for the downsides. 

There is still time, however, while the governance is being formed to make some fixes.  Our local leaders should consider an additional set of protections to prevent this experiment from going awry — and ensuring that, taxpayers aren’t left holding the bag.

First, the approved agreement by the City of San Diego unfortunately did not establish an independent citizens’ rate oversight body.  While there is a community advisory body and technical body, no group is specifically empowered to be a check on whatever billing rates are setup by this new CCA.  We know from our experience with independent citizens’ oversight on school bonds how important this is to building trust between the people and their governments.

A second major concern is that the “excess revenues” earned – government’s name for profit – should be limited in their uses.  Since the CCA has the ability to set its own energy rates, we don’t want billpayers backing endeavors that aren’t connected to energy usage and greenhouse gas reduction.  In fact, why not just refund billpayers?

Right now, the agreement says this: “Pursue purposeful and focused investment in communities of concern, prioritization of local renewable power, workforce development, and policies and programs centered on economic, environmental, and social equity.”  And the section on finances later in the agreement doesn’t create restrictions on this “purposeful investment.”  As we already discussed, there isn’t a formal independent citizens’ rate oversight committee to monitor. 

The lack of limitations and oversight creates problems.  If a member agency’s pension fund becomes severely underfunded to the point that we can’t pay the retirements for deserving civil servants, can the JPA then invest in pension obligation bonds in the name of economic and social equity?  Could a future local leader try this?  

Our third major concern: what happens if things go wrong and a CCA goes bankrupt?  Now we’ll be the first to say that it seems unlikely this would happen, especially since the CCA gets to pick its own rates to charge billpayers. But like any legal contract, JPA agreements should be written to account for the “what ifs.”

So again, what if a CCA goes bankrupt?  The agreement permits a city to “volunteer” to provide public funds or advances for the JPA.  Is there enough ambiguity that if this CCA were to go bankrupt, any debt holder for the CCA could claim in court that member cities should be volunteered to pay them back?  

The authors of the agreement might say it’s impossible, but here’s our perspective: why not just explicitly state in the agreement that in the event of bankruptcy, investors have no rights to access members’ general funds?  Or that all debt should be issued with the understanding that no city can volunteer to pay it back. If something were to go south, we’d save the judicial branch some time here and be transparent with potential creditors at the same time.

There are many details to mind here.  We hope as cities develop their policies, they add additional oversight and protection to ensure it delivers on promises of sustainability on the fiscal front as well.  

We hope to have sparked some concerns of mayoral hopefuls.  They’re going to inherit this.