OCPA Fined $2 Million After Putting California in Jeopardy

CommentaryOrange County Power Authority recently launched into business amid promises that it would provide an adequate supply of electric power to its customers in southern California. Now it turns out that OCPA’s claim was premature, putting the region’s electric reliability in jeopardy. OCPA’s tenuous preparedness is only undermined by recent infighting within the agency’s executive suite. Much of OCPA’s power is from out-of-state windmills and solar panels, but an equally important part for everyone, including Southern California Edison and San Diego Gas & Electric, is what’s known as “resource adequacy.” Resource adequacy is the reliable back-up power that turns on when unreliable windmills and solar panels stop producing power. If resource adequacy fails to materialize when needed, the lights go out. OCPA’s shortfall of electric power promises to surface this summer as the green energy agenda pushes the state further toward unreliability, all but guaranteeing blackouts as hydroelectric supplies dry up with the drought. OCPA formed under a law allowing local towns and cities to establish electricity procurement agencies. The agencies, known as community choice aggregators (CCAs, also known as community choice energy or CCE), are little more than energy trading houses operated by consultants and locally installed political figureheads, such as OCPA’s Brian Probolsky, who landed OCPA’s top job under the watchful eye of the agency’s chair, Irvine councilman Mike Carroll. Key OCPA personnel and consultants financially benefit as ratepayers are automatically switched into the program with the opt-out enrollment feature, the lifeblood of its existence. OCPA’s energy is delivered by Southern California Edison over Edison’s power lines. Edison is also required to include OCPA’ charges on its own monthly electric bills to consumers. (The same holds true for CCAs in San Diego and in Pacific Gas & Electric’s service area.) In April, the California Public Utilities Commission assessed a $2 million fine against OCPA after the energy upstart failed to adhere to California’s resource adequacy requirements by not purchasing enough electricity for consumers. Meanwhile, OCPA’s lawyers are complaining to the Commission about an “unconscionable procurement environment,” pivoting from culpability to victimhood. This excuse fails to distinguish OCPA from other (responsible) new electricity providers navigating the current market which is, ostensibly, an unconscionable procurement environment for them as well. OCPA’s lawyers claim the agency went to “exhaustive lengths” to procure requisite volumes of electricity, albeit unsuccessfully. In the power business, exhaustive lengths is typically synonymous with planning and doing your job. Indeed, OCPA’s own documents are unsupportive of its quest for leniency. Its 2021 (pre-launch) amended Implementation Plan and Statement of Intent notes: “The (OCPA) Program will meet or exceed all the applicable regulatory requirements related to resource adequacy and the RPS (renewable portfolio standard)” [bold added]. “The Program will ensure that sufficient reserves will be procured to meet its peak load at all times” [bold added]. “The Program will coordinate with SCE and SDG&E and appropriate state agencies to manage the transition of responsibility for resource adequacy from SCE and SDG&E to OCPA during the Program’s phase-in” [emphasis added]. OCPA further contests its $2 million fine on the basis of “impossibility,” claiming the market was unexpectedly harsh and that OCPA should be granted a special pass as California’s grid evolves to integrate increasing volumes of renewable energy each year, per SB 100. The market’s evolution is no surprise to electricity professionals who recognize that community choice aggregation’s green agenda is a large contributor to the tenuous state of California’s electricity market. With respect to OCPA’s eschewal of responsibility and penalties for its deficient annual resource adequacy volumes, it is worth asking if the agency refunds profits to consumers whenever its income exceeds its costs in an energy trade or arbitrage? Or, rather than provide lowest prices, does it plow those profits into its self-preservation Reserve Fund? Community choice aggregation agencies are supposedly not-for-profit. Part of community choice aggregators’ rejection of California Public Utilities Commission policing is rooted in their belief that community choice is beyond regulatory oversight, and that the electric market should be treated as the wild west. CCA patriarch Marin Clean Energy’s senior executive Dawn Weisz says, “It is important for the commission to regulate monopoly organizations (SCE, SDG&E, PG&E) with shareholder interests. But CCAs are managed by elected local government boards accountable to constituents, which makes CCAs accountable to constituents. It is a different relationship. The CPUC needs to understand that.” [footnote A] Wei

OCPA Fined $2 Million After Putting California in Jeopardy

Commentary

Orange County Power Authority recently launched into business amid promises that it would provide an adequate supply of electric power to its customers in southern California. Now it turns out that OCPA’s claim was premature, putting the region’s electric reliability in jeopardy. OCPA’s tenuous preparedness is only undermined by recent infighting within the agency’s executive suite.

Much of OCPA’s power is from out-of-state windmills and solar panels, but an equally important part for everyone, including Southern California Edison and San Diego Gas & Electric, is what’s known as “resource adequacy.” Resource adequacy is the reliable back-up power that turns on when unreliable windmills and solar panels stop producing power. If resource adequacy fails to materialize when needed, the lights go out.

OCPA’s shortfall of electric power promises to surface this summer as the green energy agenda pushes the state further toward unreliability, all but guaranteeing blackouts as hydroelectric supplies dry up with the drought.

OCPA formed under a law allowing local towns and cities to establish electricity procurement agencies. The agencies, known as community choice aggregators (CCAs, also known as community choice energy or CCE), are little more than energy trading houses operated by consultants and locally installed political figureheads, such as OCPA’s Brian Probolsky, who landed OCPA’s top job under the watchful eye of the agency’s chair, Irvine councilman Mike Carroll.

Key OCPA personnel and consultants financially benefit as ratepayers are automatically switched into the program with the opt-out enrollment feature, the lifeblood of its existence. OCPA’s energy is delivered by Southern California Edison over Edison’s power lines. Edison is also required to include OCPA’ charges on its own monthly electric bills to consumers. (The same holds true for CCAs in San Diego and in Pacific Gas & Electric’s service area.)

In April, the California Public Utilities Commission assessed a $2 million fine against OCPA after the energy upstart failed to adhere to California’s resource adequacy requirements by not purchasing enough electricity for consumers.

Meanwhile, OCPA’s lawyers are complaining to the Commission about an “unconscionable procurement environment,” pivoting from culpability to victimhood. This excuse fails to distinguish OCPA from other (responsible) new electricity providers navigating the current market which is, ostensibly, an unconscionable procurement environment for them as well.

OCPA’s lawyers claim the agency went to “exhaustive lengths” to procure requisite volumes of electricity, albeit unsuccessfully. In the power business, exhaustive lengths is typically synonymous with planning and doing your job.

Indeed, OCPA’s own documents are unsupportive of its quest for leniency. Its 2021 (pre-launch) amended Implementation Plan and Statement of Intent notes:

  • “The (OCPA) Program will meet or exceed all the applicable regulatory requirements related to resource adequacy and the RPS (renewable portfolio standard)” [bold added].
  • “The Program will ensure that sufficient reserves will be procured to meet its peak load at all times” [bold added].
  • “The Program will coordinate with SCE and SDG&E and appropriate state agencies to manage the transition of responsibility for resource adequacy from SCE and SDG&E to OCPA during the Program’s phase-in” [emphasis added].

OCPA further contests its $2 million fine on the basis of “impossibility,” claiming the market was unexpectedly harsh and that OCPA should be granted a special pass as California’s grid evolves to integrate increasing volumes of renewable energy each year, per SB 100.

The market’s evolution is no surprise to electricity professionals who recognize that community choice aggregation’s green agenda is a large contributor to the tenuous state of California’s electricity market.

With respect to OCPA’s eschewal of responsibility and penalties for its deficient annual resource adequacy volumes, it is worth asking if the agency refunds profits to consumers whenever its income exceeds its costs in an energy trade or arbitrage? Or, rather than provide lowest prices, does it plow those profits into its self-preservation Reserve Fund?

Community choice aggregation agencies are supposedly not-for-profit.

Part of community choice aggregators’ rejection of California Public Utilities Commission policing is rooted in their belief that community choice is beyond regulatory oversight, and that the electric market should be treated as the wild west.

CCA patriarch Marin Clean Energy’s senior executive Dawn Weisz says, “It is important for the commission to regulate monopoly organizations (SCE, SDG&E, PG&E) with shareholder interests. But CCAs are managed by elected local government boards accountable to constituents, which makes CCAs accountable to constituents. It is a different relationship. The CPUC needs to understand that.” [footnote A]

Weisz’s logic is circular. Local government boards are largely rubber stampers. CCAs are accountable only to constituent shills who regurgitate talking points during three-minute sound bites at board meetings. The real power of CCAs resides in their form as a Joint Powers Authority, which insulates the CCA from true constituent accountability with its added layers of committees and watered-down voting rights of its municipal jurisdictional members.

The timeline in the “Factual Background” contained in OCPA’s May 20, 2022 appeal of its $2 million fine includes several milestone dates. It does not reference OCPA’s execution of its $2.4 million contract with its resource adequacy consultant, Pacific Energy Advisors, 9 months prior to OCPA’s business launch.

A tightening supply of reliable energy resources should come as no surprise to CCA agencies whose green new deal existence is predicated on eliminating gas and coal-fired energy production, as well as the closure of Diablo Canyon nuclear plant—California’s largest source of reliable baseload carbon-free energy.

Given the critical nature of resource adequacy, why didn’t OCPA pull the plug on its launch when it initially determined it would have trouble meeting its upcoming mandate? If consultants had advised ceasing operations, that $2.4 million consulting contract would have dried up.

As an “advisor” to OCPA, Pacific Energy Advisors had a potential conflict of interest starting when the ink was still wet on its contract.

OCPA member cities could have easily walked away from the agency’s power contract obligations without incurring more than one-half billion dollars of energy contract debt (now of record), per Section 5.7 of the OCPA Joint Powers Agreement [footnote B]. Inconveniently, however, the City of Irvine would lose the $7.7 million pre-start up loans it made to OCPA.

Irvine leadership could not afford to be associated with “bad loans to a failed start-up”—a career ending headline for elected office holders tethered to the energy agency.

The Irvine leadership list points to Irvine Mayor Farrah Kahn and Irvine councilmember Mike Carroll, both OCPA board members, the latter OCPA’s chairman.

Better to forge ahead rather than become embroiled in a political wreck, especially with the benefit of an esoteric problem hiding in plain site—resource adequacy’s granular minutiae lost on constituents trying to survive an inflationary world of disorder.

Indeed, unwinding an upstart community choice agency would undoubtedly be the end of political careers in Irvine as bad loans and off-book debts surfaced.

Western Riverside Council of Government’s (WRCOG’s) experience with its failed Western Community Energy proves as much. WRCOG’s Executive Director (and chief CCA salesperson) instantly vanished when Western Community CCA’s cash flow deficits of nearly $1 billion were revealed.

OCPA leadership, particularly within Irvine, knows constituents would flip if they learned that OCPA not only pumped consumers’ money out of California, but out of the country, including to a European oil conglomerate.

How would leadership explain that most of the “local” revenue promised to OCPA’s member towns and cities had already been carved up by shareholder corporations in the Midwest, Florida, and Europe, leaving picked-over carcasses as “investment back into the local Orange County community”?

Aside from OCPA’s political insiders, Shell Oil, Morgan Stanley, and OCPA’s resource adequacy consultants at Pacific Energy Advisors are the biggest beneficiaries of the agency’s decision to white-knuckle it through a regulatory spanking. Resource adequacy? $2 million fines? Fuhgeddaboutit. At OCPA, losses are public, profits are private.

Make no mistake, California’s electric reliability—and its looming blackouts—lay at the door of undercapitalized community choice aggregators, and more so at the feet of board members who foolishly push these undercapitalized and ill-prepared agencies into business and onto consumers.

A grand combination of ego, ignorance, hubris, and greed got OCPA into a predicament that affects everyone.

Irvine’s financial entanglements and its key councilmembers’ political careers only added to the soup that now includes name-calling and finger-pointing in the form of Huntington Beach’s unfolding theatrics as councilmembers Dan Kalmick and Mike Posey reportedly engaged in undermining the Brown Act at OCPA while allegedly attempting to maneuver Posey into a newly created high-level agency job, all while purportedly attempting to orchestrate an internal coup of OCPA’s chief executive.

Who is running the place? Fidel Castro?

Irvine leadership should have pulled the plug on the cesspool that is OCPA long before soliciting cities to join its ranks and assume untold financial liability—before electric instability set in and leadership’s behavior degraded to what belongs in a sandbox.

OCPA’s DNA is completely devoid of leadership and corrupted by greedy consultants who garner incomes without incurring risk or loss, working the “losses are public, profits are private” edict.

A $2 million resource adequacy fine is the least of our worries. California is staring at third-world electric reliability. OCPA should pay the fine in full, apologize for the havoc wrecked on the region’s electric reliability, then pull the plug on its entire operation.

Footnotes: [A] Utility Dive, November 17, 2017, “Does C-C-A spell the end of the regulated electric utility in California?”

[B] OCPA board meeting, April 5, 2022, https://vimeo.com/696260108/3d898d4215, elapsed time 1:12:33, Kirby Dusel, Pacific Energy Advisors in response OCPA Chair Mike Carroll’s inquiry: OCPA has commitments for over one-half billion dollars for multi-year power and reserves.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


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Jim Phelps spent 35 years in the power industry as an engineering contractor and utility rate analyst. He served nearly four years supporting and implementing California’s new standardized energy reporting law, AB 1110, at the California Energy Commission. He has written extensively about Community Choice Energy for the past twelve years.