Sonoma Clean Power: From startup to profit in two years

Two years ago, Sonoma Clean Power launched as a public startup in a business dominated locally by PG&E, a private-sector energy giant that has served households and businesses in Sonoma County for more than a century. The new venture’s supporters promised consumers a greener brand of electricity built upon greater use of renewable power, from solar, wind and other non-fossil-fuel burning sources.

For consumers, that basic service has been cheaper than PG&E’s, shaving an average of 2 percent off monthly electricity bills and saving customers as much as $50 million since its start in May 2014, according to Sonoma Clean Power.

The agency, which includes the county and eight of its nine cities, now serves 196,000 residential and commercial accounts, representing 89 percent of eligible electricity customers. It has reached profitability faster than projected, paying off startup loans and stockpiling reserves amounting to 10 percent of its $165.5 million annual budget. As of March 31, its net income - revenue from customer bills minus electricity purchases and operational costs - was $21 million for the fiscal year, a threefold increase over projections.

“I’m incredibly proud of the fact that we’ve moved from starting with borrowed money to paying off all our debt. We set really strong goals, and we’ve beaten every one of them,” said Geof Syphers, the agency’s chief executive officer.

The venture now finds itself at a crossroads. Its financial stability, in part, has fueled a debate over where to invest its windfall. Should it sock away that money for long-term reserves, spend it now to reduce rates, or use it to launch new green energy programs?

Any fundamental shift away from the core electricity service could put upward pressure on costs, ratepayer advocates warn, leading to higher customer bills and eroding support for the venture. They have urged a conservative approach to spending on green power projects, and especially smaller, local sources, where scale, land-use restrictions and other factors make electricity costlier.

Electricity from a large new Central Valley solar supplier, for example, is about half the cost of locally produced solar energy.

“You can’t have clean energy, cheap energy and local energy all at the same time,” said Don Schwartz, Rohnert Park’s assistant city manager, who serves on the agency’s board of directors. “I think there is a misunderstanding that we can have it all. Someone is ultimately paying for all of this, and it turns out it’s going to be the ratepayers subsidizing local clean energy projects.”

But Syphers and some supporters within Sonoma Clean Power argue that the agency must expand to remain competitive with PG&E, which is under state mandates to increase its use of renewable energy. They also are promoting the agency as a key actor in local efforts to address climate change.

“We need to have local investment in renewable energy, we need to reduce greenhouse gas emissions and we need to have competitive rates. All three of those things are going to have huge benefits for our customers,” Syphers said. “If we only focused on rates, we’d have a bit lower rates, but we wouldn’t be achieving our renewable energy goals or investing in the local economy. We’re making good progress on all three fronts, but there is tension.”

The debate over the future of Sonoma Clean Power is set to resume today, when officials from the county and eight participating cities who comprise the board of directors are set to decide how much of the budget to invest in stabilizing rates, boosting financial reserves and growing new programs. The outcome has implications that could ripple across the county, affecting the amount hundreds of thousands of people pay monthly on their electricity bills, as well as action on the promise two years ago to spur local job creation in the renewable energy sector.

The discussion has been fueled in recent weeks by proposed revisions to the agency’s governing document. One proposal up for consideration would solidify its focus on the broader effort to address climate change in Sonoma County, rather than work simply to curb emissions tied to power use and generation.

Another controversial proposal by Syphers would have stripped a provision that emphasizes local energy development and job creation, a key component in the public pitch that led to the formation of Sonoma Clean Power. Syphers quickly tabled that proposal after hearing strong opposition last month from representatives of the solar energy industry.

The most significant proposed change moving forward is to grow electricity sales by expanding into the transportation sector, a market that extends beyond homes and businesses and accounts for a majority of the county’s greenhouse gas emissions.

The proposal is a bold one: use a public power supplier to shift transportation in the county - including cars, buses and perhaps, eventually the SMART commuter train - off fossil fuel and to electricity.

“We’ve realized that it isn’t only emissions from electricity that matters - it’s the total emissions in the county. So we sat down and thought about how we could get the biggest benefit for the least amount of money. It turns out it’s from convincing people to try an electric vehicle,” Syphers said. “If we can double the amount of electricity we’re using and decrease emissions from gasoline-powered cars, it will be a net win for us and for the climate.”

But critics of the proposal say the agency is expanding beyond its original scope, and that it should remain focused on three core areas: keeping rates competitive with PG&E, building local renewable energy projects and creating local jobs.

“I’m concerned that this is more than what the cities signed onto, or what the public was sold,” said Schwartz, the assistant Rohnert Park city manager.

Currently, the average residential Sonoma Clean Power customer pays $116.25 on their monthly bill, 1 to 2 percent lower than PG&E, according to the agency. For the average commercial customer, the average monthly bill is $301.92, 1 percent lower than PG&E.

The agency’s basic service has an energy supply that is 36 percent renewable, from geothermal and wind sources. Contracts for solar projects have been signed, with construction underway on installations inside and outside the county. PG&E’s basic service is 27 percent renewable. Under state rules the utility’s supply from large hydroelectric projects does not qualify as renewable.

Were the agency to invest most of its discretionary profit into holding down customer rates, monthly bills would change marginally, Syphers said. At best, rates would fall a few percentage points, he said.

“Those reserves help us get good prices for our customers, and people will also benefit in the long term through programs. The question really is when will that pay off?” Syphers said. “Ultimately, all of that money belongs to our customers.”

Syphers, a lead consultant in Sonoma Clean Power’s launch before he was selected as CEO, said the agency has a mission to do more than just provide competitively priced electricity. He argued it must be a central player in the county’s efforts to combat climate change.

Under proposals he has outlined, Sonoma Clean Power would assist low-income residents with vehicle purchases, install hundreds of new charging stations at businesses and apartment complexes and launch an education campaign encouraging electrical vehicle adoption.

Eventually, the agency’s effort could include serving as an electricity supplier to public buses and the North Bay’s new diesel-powered SMART train, expected to begin service later this year.

“We are a largely rural county and many people depend on their cars, so we want to focus on the biggest place we can make a difference and that is in electric cars,” Syphers said. The move is aimed at curbing transportation-?related emissions, which accounted for two-thirds of all emissions in the county in 2014, according to a report from the Santa Rosa-based Center for Climate Protection, a key player in the formation of Sonoma Clean Power. Tailpipe emissions alone represented half of that pollution.

The county’s overall goal is to reduce greenhouse gases 25 percent below 1990 levels by 2020.

“Getting people in (electric vehicles) is the first step,” Syphers said. “I haven’t met anyone who says they don’t want one after they turn the key and take it for a test drive. We want to be there to help them, especially low-?income people who haven’t been able to afford electric vehicles.”

Increased electric vehicle use would spur demand in the local electricity market and support investments to develop more local power projects, Syphers said. Currently, most of the agency’s power comes from out-of-the-area sources.

The drive has support on the Sonoma Clean Power board. Supervisor Efren Carrillo, a board member, said the public electricity supplier needs to grow.

“We have a huge opportunity to be out front in this revolution toward electric vehicles. We should adapt to the times,” Carrillo said. “I believe that we have an important role to play in the future of renewable energy, and transportation has to be part of that equation.”

But ratepayer advocates remain wary that any sustained push beyond core services could take a toll on the reserves that exist to stabilize rates for customers.

“Sonoma Clean Power is not going to exist in the future if its rates are higher than PG&E,” said Petaluma Councilman Dave King, the agency’s vice chairman.

An outcry by solar industry advocates last month led the agency to backtrack on the controversial proposal introduced by Syphers to eliminate a focus, spelled out in the governing document, on development of local clean energy jobs and projects.

Solar industry representatives called the change “dangerous” and “unacceptable.” Sonoma Clean Power has a duty to invest in the local green energy economy, many said.

“I was a big supporter and big campaigner for Sonoma Clean Power because of the local jobs aspect. That’s part of what differentiates us from PG&E,” said John Parry, who owns Solar Works, a solar installation company based in Sebastopol.

The discussion opened the agency to sharp criticism that it has not delivered on its promise to create new jobs.

“It was the hope that we’d have greener energy, and that it would be locally produced,” Parry said. “But they’ve brought in a bunch of big power from big installations outside the county. They’re basically just acting like a middleman reselling energy the same way an investor-owned utility does. Where is the part about creating our own energy and helping the local workforce?”

Industry representatives are lobbying for the agency to refocus on local solar development.

“We need to stay focused on creating good-paying jobs and creating career pathways for people,” said Kevin Byrne, an electrician specializing in solar installation and an instructor at Santa Rosa Junior College. “That is a community service Sonoma Clean Power shouldn’t lose sight of.”

But Bob Williamson, a member of the agency’s ratepayer advisory committee, sounded a cautionary note, arguing that lower electricity bills are another way of investing in the local economy.

“Ratepayers are subsidizing the local solar contractors by paying twice as much for the same renewable energy product,” Williamson said. “It’s exactly the same product, but we’re paying more for the work to be done here. I’d argue that keeping rates low for hundreds of thousands of people who belong to Sonoma Clean Power is an economic stimulus.”

Syphers said the power purchased from outside the county helps keep rates low, while locally sourced energy helps build a green energy economy.

Currently, 12 percent of the supply for the basic service comes from geothermal contracts with Calpine, which employs about 200 workers in its operations at The Geysers field on the Sonoma-Lake county border. The remainder comes from outside the county, with 21 percent made up of wind power and 3 percent from biomass. The remainder includes hydropower, at 44 percent of the supply, and natural gas, at 20 percent.

By 2018, solar and more geothermal sources will be added to the mix, Syphers said. Those include solar installations on county-? owned property, the largest of which will be a 12.5-megawatt solar farm on floating docks atop holding ponds operated by the Sonoma County Water Agency.

Adding to the list of local projects has not been easy, Syphers said.

“It’s hard to build these large projects because of land-use regulations, strong open space protections and the value of agricultural land,” he said.

But he said the agency is seeking to develop more local projects, along with programs to benefit the area’s solar industry.

“We are incredibly excited about the opportunities to take on things like electric cars,” Syphers said. “Something simple like using solar to charge cars during the daytime will help us grow and support local, renewable energy along the way.”

You can reach Staff Writer Angela Hart at 526-8503 or angela.hart@pressdemocrat.com. On Twitter ?@ahartreports.