UPDATE: Why is San Jose starting its own power utility?

As San Jose’s power needs increase with electrification and climate change solutions, the city will explore creating its own power utility.

The San Jose City Council on Tuesday unanimously approved the creation of San Jose Power, a city-run electric utility touted as a once-in-a-generation opportunity to provide power at lower rates and bring in more competitive development.

But city leaders say the creation of San Jose Power is purely in an exploratory phase, and will still need years of research to determine if a publicly owned and operated power utility is worth the investment. The city’s initial early study estimates 15% to 25% cost savings on electricity.

“Today’s vote is really only about studying the potential for offering a second option for delivery of power to new developments,” Councilmember David Cohen said at the meeting.

While opponents say establishing a public utility is premature with no clear outlined plans on cost or who would be served, proponents say it could provide cost savings and incentivize new large developments to come to San Jose—including data centers to further support big tech companies.

“Santa Clara has been the hub for data centers,” Cohen said. “One of the reasons for that is their municipal utility.”

In California, 25% of residents are already served by publicly-owned utilities. Locally, Santa Clara and Palo Alto have their own electric utilities. Data from the California Municipal Utilities Association shows non-residential rates with Silicon Valley Power, Santa Clara’s public utility, are over 30% lower than rates with investor-owned utilities like Pacific Gas and Electric. Residential rates with Silicon Valley Power are nearly 50% lower, data shows.

A public utility would capitalize on two high voltage power lines to run through San Jose by 2028. California Independent System Operator is the state-chartered nonprofit that manages the wholesale electricity market for 80% of California, and is the organization that has approved and funded the new power lines.

City Attorney Nora Frimann said creating San Jose Power is not “imperative” to submitting an application to use the new high voltage power lines, but it would certainly help.

“If we try to make the application and we don’t have the utility established … there may be an effort to undercut that application,” Frimann said.

The idea of forming a San Jose-owned public utility first came about during former Mayor Sam Liccardo’s term amid conversations with Google. His other plan to create a cooperative, customer-owned utility in place of PG&E in Northern California fell short when the city had been struggling with rolling blackouts and leaders were looking for alternative solutions.

Nanci Klein, San Jose’s economic development director, previously told San José Spotlight this is not a utility residents will be selecting instead of PG&E or San Jose Clean Energy. It would instead be an option for new development and to bolster key infrastructure sites like the San Jose Mineta International Airport and Diridon Station substations, which she said are in need of power, rebuilding and expansion.

Tim McRae, senior vice president at Silicon Valley Leadership Group, said there’s no clear proposal for what area the public utility would cover, or how businesses inside and outside the area of service would fare.

“You’re basically being asked, ‘Change the municipal code, we’re not sure why yet,” McRae told council. “I know there’s a level of frustration with PG&E … You don’t just wave a magic wand and have a functional municipal utility with cheaper costs and no interconnection backlog.”

PG&E has shifted its backlog for new loads to the electric grid to prioritize safety-related wildfire resistance projects. The backlog for new projects is as much as seven years, according to a city memo.

State Sen. Josh Becker’s recently passed SB 410 is expected to speed up PG&E’s backlog, but Klein said Tuesday that PG&E has been upfront that there’s “no quick fix.”

PG&E executive Teresa Alvarado—a former Santa Clara County Board of Supervisors candidate and founder of the Latina Coalition of Silicon Valley—said Santa Clara and Palo Alto both have an obligation to serve all customers within city limits, and that’s not yet what San Jose is proposing. It’s unclear at this stage whether San Jose taxpayers will have to foot the bill for building out a municipal utility with plans to serve a small portion of the city.

“San Jose is instead proposing to create a two-tiered energy system where the municipal utility will only serve certain very large retail customers in select areas,” Alvarado said. “There’s no way to contain costs to only those large new customers who would benefit.”

The council won’t make its first major financial decision on San Jose Power until 2025. The earliest a customer could start receiving power from the municipal utility would be 2028, according to the city.

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