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San Jose City Council Votes in Favor of Exploring Municipal Utility Option

The City Council of San Jose, Calif., on Oct. 3 took an initial step forward to explore the possibility of forming a municipal utility for electric service.

The city is exploring whether to form a municipal utility for electric service in very limited areas of the city and select City facilities, a Sept. 29 memorandum related to the meeting noted. The new utility would be called San Jose Power.

The proposal before the City Council involved an ordinance amending various titles and adding a title (Title 28) to the San Jose Municipal Code to establish a municipal utility for electric service.

San Jose is currently served by investor-owned utility PG&E. In addition, San Jose Clean Energy, a California community choice aggregator, is operated by the City of San Jose Community Energy department. Since 2019, the CCA has provided clean energy for residents and businesses in the city.

At the City Council meeting, Kip Harkness, Deputy City Manager, noted that the decision before the City Council was whether the city should “continue in an exploratory phase to determine if San Jose Power is worth pursuing.”

In particular, he said “in this exploratory phase, we will ask and answer four key questions that should be addressed before beginning to scale any new electrical service.”

Those questions are whether such a move would:

  • Reduce electricity energy costs for the consumer?
  • Allow for the development of more innovative and energy efficient buildings?
  • Increase the electrical resilience of the City of San Jose and its critical infrastructure for both climate change and emergency response?
  • Enable the city to attract and retain the skilled and trained talent required to perform this work effectively and reliably?

He said that “these are questions to which we do not have the answer and part of what we are seeking today is the additional authorization to be able to get the information that we need to proceed in asking and answering these questions.”

Harkness said that ultimately two specific changes would result “if we were to eventually scale San Jose Power.”

One, “we would be procuring energy through San Jose Power and in this case, we would use essentially the same team we use for San Jose Clean Energy to assist us with that procurement, but charged to a different code,” he said.

“The biggest potential change in the future would be for San Jose Power to build out, own and operate a limited amount of distribution network in areas of the city that were new development and select critical areas,” Harkness said.

He also described new transmission lines being built in San Jose. The California ISO has contracted with LS Power as the developer/owner of the transmission lines.

At a later point, Lori Mitchell, Director for San Jose Clean Energy, and Jim Caldwell, a Deputy Director at San Jose Clean Energy, discussed details of the proposal before the City Council and the opportunities it may create. Mitchell and Caldwell are part of the city’s exploratory team for the project.

“Title 28 presents several opportunities,” Mitchell said. “The first opportunity is the opportunity to connect directly to these new transmission lines. This is probably a once in a hundred-year opportunity. These lines do not get built often and so it’s important to look at all opportunities as they get sited here in the region.”

The second opportunity is to improve reliability and resiliency of critical infrastructure, Mitchell said.

Another opportunity is supporting economic development, electrification, and climate goals for the city, she noted.

It’s also important “that we look at options to reduce costs for our ratepayers,” Mitchell said. “Our preliminary analysis shows that this may reduce costs by 15 to 25 percent and that is due to some of the benefits of municipal utilities” including typically having a lower cost of borrowing.

Public power is a “very proven model,” Mitchell said at the meeting.

Noting that California is well represented when it comes to existing public power utilities in the state, Mitchell cited information from the California Municipal Utilities Association showing that public power utility rates are 15% lower on average than private utilities in the state.

Caldwell noted that the state is starting to see net load growth again and that forecasts are showing that in the city of San Jose, “our loads will be increasing roughly 36 percent more than the average load increase for the rest of Northern California.” The ISO recognized this with its approval of the transmission lines.

The load increase needs to be coordinated and San Jose needs to have a “seat at the table,” he said. One of the ways to get that seat at the table “is to become a utility. When you become a utility, now you’re a member of the club. Now you have access to all the data that everybody else has.”

Prior to the council’s vote, Harkness laid out potential next steps in the process.

“We think that about the next 18 months are in this exploratory phase,” he said. He pointed out that creating Title 28 does not commit the city to serve any load.

“We would require three key council actions and council direction before we were in a position to actually begin implementation,” Harkness said.

Over the next 18 months, “we would work on building out the business case and defining the service area,” he said.

“We’d come back to you sometime in 2025 with your first go/no go direction and decision,” he told the council. “If that were a go, we would proceed forward with beginning to develop a staffing model, creating job classifications and refining the business model and approach. We’d come to you again sometime around 2026 for your direction and decision number two and a go/no go decision. From that we would then develop a recommended budget, actually set rates and begin to be ready for hiring as part of the annual budget process and the third go/no go final decision would be the approval of that budget, setting us off to implementation and scaling starting with some of the lower hanging fruit…but taking several years before we were actually delivering service to scale.”

“I applaud the San Jose City Council for taking this important step,” said Barry Moline, Executive Director of CMUA. “It shows their leadership and desire to provide the San Jose community with the high quality electric service they deserve.” 

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