The Orange County Power Authority has been in a state of turmoil during its first three years, losing support among member cities and also losing employees, including its founding chief executive.
Despite this, the renewable energy agency wants its 31,000 business customers and 200,000 residential customers to know it will survive.
“It’s rough going right now because we’re just learning how to walk,” Power Authority Chairman and Fullerton Mayor Fred Jung told the Business Journal.
“No other power authority in the state has had the contentiousness that Orange County has. Orange County is that way in nature.”
The OC Power Authority began selling power to businesses in April 2022, and six months later to residences.
Since its start, the entity has received criticism from both conservative and progressive politicians, some of whom won elections on platforms to abolish it or fire its chief executive.
It’s lost customers like the County of Orange and San Clemente, which opted to go with a different program in San Diego County. Huntington Beach plans to leave while the city of Irvine will vote again this week on whether it intends to withdraw from the agency next July, according to an agenda item for its Dec. 12 city council meeting.
Jung and interim Chief Executive Joe Mosca dismissed the idea that the agency is on its deathbed, pointing out it has $50 million in cash.
“It is not a dying thing,” Mosca exclaimed. “We are filling a gap in the market. There are residences and businesses that are demanding more renewables, more clean energy and we are giving them an option for the first time ever.
“Ten years from now, we’ll be in every major city” in Orange County, Mosca predicted.
Third of Californians
California in 2002 approved Community Choice Aggregation entities (CCA), which are set up to enable local governments to purchase power, set competitive rates and collect revenue. Thus far, about 25 have been formed in the state.
“A third of all Californians are serviced” by these entities, Jung said.
“This is the future. It’s important that folks recognize that. Offering choice in the marketplace is so uniquely American.”
The OC Power Authority, which was formed in late 2020, hired as its first CEO Brian Probolsky, who was involved in Orange County government in a variety of executive roles in the past decade and previously was an entrepreneur who started and sold technology firms.
What Probolsky lacked was a college degree and experience in the energy industry, according to critics and a Grand Jury report. He was fired earlier this year and was replaced on an interim basis by Mosca, who was hired by Probolsky last year.
Probolsky was dismissed because of public perception rather than competence, Jung said.
“The media narrative was against this CEO,” Jung said. “Nothing we could do as a board could change the narrative.”
Probolsky’s attorney, Megan Lencek, didn’t return a Business Journal request for comment.
Skeptics criticized the agency as naïve and doing something the private sector should.
“I don’t believe government is the right vehicle to promote competition,” said Casey McKeon, a Huntington Beach city council member.
McKeon was one of four council members who voted 4-3 earlier this year for Huntington Beach to exit the nonprofit, effective next June. McKeon said he’s heard from businesses who complained their electricity bills have risen anywhere from 30% to 100% since the city joined the OC Power Authority.
The city itself estimated it will save more than $300,000 annually by going back to Southern California Edison, McKeon said.
Earlier this year, McKeon told the press that the agency was “a total disaster and doomed for failure.” McKeon, who is currently on the OC Power Authority’s board of directors, has since softened his tone.
“It was doomed to failure; now it’s on a much better path and it could survive,” McKeon told the Business Journal. “They are making good strides.”
Even so, McKeon said there is “no chance” that Huntington Beach will reconsider and stay in the OC Power Authority.
Irvine City Council member Larry Agran is also bearish on the agency, saying each Irvine household that belongs to the agency is paying $15 to $40 more per month than typical.
“In my opinion, none of the so-called fixes have addressed the fundamentals that this agency makes any sense at all,” Agran told the Business Journal. “I don’t think its long-term chances of survival are good. They’re poor.”
The Irvine City Council this week is scheduled to discuss an Agran proposal to exit the agency. Agran said he doesn’t know if he has the necessary three votes to exit the agency on the same five-member council that last year voted down his proposal to leave.
Interim CEO
The nature of joint powers authority is tricky because of politics, Jung said.
“It becomes uniquely political even though it shouldn’t be,” he said. “If you look at the Metropolitan Water District in Southern California during its inception, it was a mess. Everybody was fighting over their rights. Now it’s extraordinarily well run.
“It’s the same with Orange County Transportation Authority. When it began it was rough going. Now it’s one of the best run organizations.”
The officials said the OC Power Authority has implemented a 24-point improvement plan to address weaknesses cited by various complaints, including some by the OC Grand Jury.
The board at press time was interviewing potential candidates for CEO. A permanent CEO is expected to be named by the end of the year.
Interim CEO Mosca is one of those candidates. An attorney by training, he has 10 years of experience in the energy industry, including with San Diego Gas & Electric and Southern California Gas Company. He was a founding member and first chairman of San Diego’s power authority, the state’s second largest power entity.
Renewable Buyer
Under the new system, the Power Authority outsources the procurement of energy to Folsom-based Pacific Energy Advisors, which buys the energy from producers of renewable energy like solar farms and wind farms.
Edison distributes the Power Authority’s energy to customers and handles the billing.
The agency said about 96% of its supply was procured from renewables last year, while Edison’s was 33%.
The Power Authority’s rates are based on a three-tier system where customers can choose the highest price, which has a goal of being 100% renewable and which 71% of its customers choose.
It’s more expensive than Edison’s programs, officials said.
The second tier, called “smart choice,” has a 69% renewable goal and is geared to be similarly priced to Edison’s.
A third tier is its basic rate, which has a 38% renewable goal, and is about 2 cents per kilowatt hour cheaper than Edison’s.
The Power Authority said all three rates exceeded their goals for renewable energy in 2022 (see chart, this page).
Exactly how much higher renewable energy costs than traditional sources is difficult to say, officials on both sides said, pointing out that natural gas prices have spiked in recent weeks.
The power authority officials said businesses are often willing to pay the higher price as a method to comply with corporate goals for environmental, social and governance reasons (ESG).
“We have gotten serious responses from our businesses because most of them have global goals around ESG,” Mosca said. “They see working with us as an important way to reach their sustainable goals.”
Profitable Nonprofit
The agency currently has 18 employees with a goal of 30 within a year.
In the year ended June 30, it reported sales of $276 million with operating expenses of $226.6 million, resulting in operating income of $49.6 million, according to its treasurer’s report.
The agency will have about $320 million in sales this fiscal year, Mosca said.
The nonprofit plans to eventually reinvest a significant amount back into its communities, such as more EV charging stations in Fullerton, Jung said.
The entity’s cash pile has grown from $14 million in June of 2022, to about $50 million currently. It has a goal of $88 million in cash by the end of its fiscal year in June, Mosca said.
The entity wants to use its cash balance to help it obtain within a couple years an AA or AAA rating by S&P Global Ratings, which will help lower its financing costs.
Jung pointed out that the Clean Power Alliance, the largest similar entity in the state with three million residents and businesses in Los Angeles and Ventura counties, received an “A-” rating from S&P Global Ratings in September.
“The Orange County Power Authority is about giving people a choice for the first time ever in their energy future,” Mosca said. “You’ve had a monopoly in this space for more than 100 years. We want to offer competitive rates and an option for the first time ever.
“We want to be the preeminent clean energy public agency in Orange County.”
Blackouts? Still Possible
California is betting big on renewable energy sources, having shuttered the San Onofre Nuclear Power Plant and other traditional generators of energy.
With these sources being reduced, are blackouts still possible, like the infamous one in Texas in 2021?
“We’re a bit more resilient in California” than Texas, said Fred Jung, chairman of the Orange County Power Authority and Fullerton Mayor. “On some levels, we can thank the great state of Texas. There are lessons we learned.
“We have to build out the infrastructure. We got to prepare for things we have promised we’d do.”
Jung doesn’t believe owners of commercial buildings need to buy generators to prepare for possible blackouts in the coming years.
“I’m fairly confident that we’re doing alright,” he said.
Nonetheless, Californians have endured rolling blackouts, including in 2020. Fears about renewable energy being able to keep up supply was evidenced in August when the state voted to keep open three natural gas plants operating through 2026 rather than closing them this year as planned, including one in Huntington Beach.
Natural gas was the largest supplier in 2022, providing 36% of the state’s demand while large hydroelectric plants chipped in another 9.2%.
Also, the state government last year decided to give a reprieve to its last remaining nuclear power plant at Diablo Canyon by extending its permit from 2025 to 2030. That power plant supplied 9.2% of the state’s needs in 2022.
By contrast, renewables supplied 36%, most notably 17% from solar power and 11% from wind power.
“We don’t want to retire a traditional asset that has a lot of capacity before we get things up and running,” Orange County Power Authority interim CEO Joe Mosca said. “There is an acknowledgement that there is a reasonable transition.”
The OC Power Authority in April signed a contract with Grace Orchard Energy Center LLC, which is developing a facility in Riverside to generate 90 megawatts of solar power and be capable of storing 30 megawatts of energy. It’s scheduled to go online in 2027 or 2028.
“Right now, we’re trying to ensure we’re bringing online as much generation as possible without retiring traditional resources that are needed in the market,” Mosca said. “We’re maintaining a balance.”
