Economic Analysis Finds Major Flaws with City’s CCA Report

Project could expose San Diego to massive financial risks and offer few of the benefits claimed in report
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(San Diego, Sept. Leading business economist Dr. Lynn Reaser released an independent analysis today of the City of San Diego’s feasibility study for a government-controlled energy program that determined the city’s study is flawed, lacks critical information, and reaches a conclusion not supported by the facts. 

“The feasibility study’s finding that a CCA (Community Choice Aggregator) would be ‘feasible’ is at best a weak endorsement, especially in light of the number of risks regarding both its benefits and costs,” Dr. Reaser’s analysis says. “Our analysis finds that even this conclusion of feasibility cannot be supported on the basis of the 803-page study.”

“Given the sizable financial risks associated with the many uncertainties involved in a CCA, the city should wait, or work with the local utility on potential alternatives that avoid incurring such serious financial jeopardy.”

Dr. Reaser is the Chief Economist of Point Loma Nazarene University’s Fermanian Business and Economic Institute (FBEI). Under her direction,

  • No credible evidence is given to support the claim that a CCA would reduce consumer rates.
  • Potential economic benefits of a CCA are overstated, including the number of jobs produced.
  • The study concludes that a CCA is financially feasible but indicates that only two out of 11 potential scenarios have a positive financial outcome. Potential negative outcomes range from a loss of $47 million to a loss of $2.8 billion for the city and its taxpayers.
  • The study’s claims that a CCA would reduce GHGs are unfounded. Under its Climate Action Plan, the city’s goal is to receive 100% of its energy from renewable sources by 2035. Accomplishing this goal is the most important motivation for a CCA, yet the study’s base case for a CCA only achieves a 51% renewable energy supply by 2035.
  • There is little rationale to indicate that a CCA will generate additional renewable energy supplies, meaning the city would purchase existing renewable energy from other regions. This would not reduce greenhouse gas emissions. 
  • The study indicates that a new CCA could face several years of initial financial losses. These losses could make securing investment capital difficult. Without capital to finance the construction of wind farms and other new renewable energy sources, the city would have to tax residents or borrow money, leading to a potential negative impact

FLAW: Costs are Unknown

The California Public Utilities Commission (CPUC) is revising formulas used to make

“The strong likelihood that PCIA could be adjusted up…should be of major concern to the city…Much larger PCIA increases could expose the city to alarmingly high financial liability,” Dr. Reaser’s analysis says.

Customers who left Pacific Gas & Electric (PG&E) in Northern California, for example, have been hit by exit fees that have soared 400% in the past five years.

Dr. Reaser’s analysis makes several additional points about unknown costs and risks, including: “The study shows the large start-up costs in terms of infrastructure requirements as well as the need to establish a skilled team to interact in the energy market. The learning curve could be steep. Annual operating costs are estimated at $792 million.”

“The

FLAW: CCA Rates Higher than Utility

On rates, the study makes several points, including: “The study shows that the CCA rates necessary to cover expenses would initially be higher than those available from SDG&E. It then assumes that SDG&E rates will rise by about 3 percent over the rest of the 10-year period through 2035 while assuming that CCA rates would remain flat or even decline. The SDG&E projections have no sound basis and the assumption that the two competing utility entities would face different pricing in the same energy commodity market is without merit.”

FLAW:  Job Creation Overstated

On jobs, the study makes several points, including: “The study’s economic impact analysis presents the total effects of building a 10-MW solar facility. The study then finds that such a solar system is not feasible for the City, but models it anyway. Only 11 jobs are produced, although one of them would earn an annual salary of $2.3 million despite working just

FLAW:  Emissions Reductions Overstated

On the production of more green energy, the study makes several points, including: “The CCA is unlikely to add to new renewable energy supplies at least until after a number of years when it might generate positive returns. Without long-term contracts necessary to develop new wind or solar facilities, the CCA would simply purchase from existing supplies. It would thus take a greater share of the nation’s existing renewable energy supply, but have no effect on greenhouse gas (GHG) emissions.” 

FLAW: Lack of Transparency

The FBEI analysis makes clear that because the study’s authors refused to share the full set of data and spreadsheets they used to produce the feasibility report, the FBEI analysis was restricted to only the text and tables published in the city-commissioned study. 

Click here to read Dr. Reaser’s analysis.

Media contact: Tony Manolatos

[email protected]

About Dr. Lynn Reaser 

Dr. Reaser is the Chief Economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University and the Chair of the Treasurer’s Council of Economic Advisors, where she advises State Treasurer John Chiang on issues impacting California’s economic climate. She currently serves as the Chair of the National Association for Business Economics Foundation and has previously served as the Chair of the California State Controller’s Council of Economic Advisors. 

About the Fermanian Business & Economic Institute 

The Fermanian Business & Economic Institute is a strategic unit of the Fermanian School of Business at PLNU that specializes in a variety of expert consulting services dedicated to discovering insights that effect change for organizations around the globe.

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