E = $, and the trend is up

Greg Nullet for D.R.M.   6/21/2011

Or, in punster terms, electricity is currentcy. While most city and county investment portfolios carry utility stocks or bonds, we can also make a good case for sustainable power as a community investment strategy. California regulates its privately held utilities. For electricity in Ojai that means Southern California Edison. They have to petition the California Public Utilities Commission for rate increases. Over the last 25 years the average retail rate for electricity has roughly doubled., an increase of about 3% per year. It has never gone down. With the passage of Senate Bill No. 2 in April, 2011, which requires that at least 33% of all retail electricity in California be from renewable sources, the pressure on electrical power costs is up, not down.

Further, as consumers of electricity, cities and counties have a vested interest in sourcing local suppliers. A few cities, Los Angeles and Santa Monica for example, have formed their own utility districts and sell directly to their captive market. Their prices are competitive with the bigger utilities. Other communities have two options for self-generated power: – Sell to the local utility at wholesale rates, or supply retail power to a local user. The wholesale rate is about 5 or 6 cents and it is, or will be, set by the CPUC. Retail rates are closer to 12 cents. Without commenting on coal, nuclear or natural gas as options, this article is about renewable energy. As an investment decision for a community renewable energy has some disadvantages. For instance, a power plant is an illiquid asset. And as a physical asset it will require some maintenance. On the other hand, it has great advantages of stability and community benefits. With electricity prices regulated and slowly rising, volatility or loss of principal is a remote risk. And each type of renewable has its own merits. Solar is simple to install and maintain. It can be set up almost anywhere and tied directly into the meter. There are no further emissions and you can plan for a 50 year life-span. The most involved type of sustainable power is a biomass plant. It requires some land area and community planning. And, the large output requires a large customer base or access to regional grid facilities. But a biomass plant also has several benefits. It reduces landfill use, reduces pathogens (such as water contamination from manure run-off), creates jobs; and it produces power, fertilizer and mulch which can be sold. Local solid waste managers can calculate a steady stream of feedstock for a biomass plant. This ensures consistent operation and reliable power. Feedstock can include grass clippings, restaurant food waste, horse manure and straw. Otherwise these would simply end up as landfill with the accompanying tipping fees. Even if the fertilizer and mulch are trucked out and given away for free, the disposal costs are lowered.

Electricity rates in our regulated system tend to rise steadily while financial assets such as currency, bonds, or stocks fluctuate according to the market. A local, consistent supply of renewable electricity is a long term asset to a community. And as a government body, or quasi-governmental, each department has a duty to look after not just its own mission, but also for the larger state and national interests, and do what it can to serve those interests consistently with its own capabilities.


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