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Locals battle PUC over ‘community choice’
Renewable energy: Windmills line a ridge near Palm Springs at sunset. (Photo: Joe Belanger, via Shutterstock)The California Public Utilities Commission is poised to decide the formula that determines how much consumers are charged by the big investor-owned utility companies, or IOUs—such as Pacific Gas & Electric or Edison, for example—when the customers switch to local community energy programs.
It’s a complex issue, but one with major implications for consumers’ pocketbooks.
If an IOU customer decides to leave and switch to a local community-run program, an exit fee called a “power charge indifference adjustment,” or PCIA, is charged. This charge, posted on every investor-owned utility bill, compensates the utility company for energy contracts bought in the past that are still in effect.
“The PCIA is designed to ensure that customers who do not have the ability to move to a [community choice aggregation] or choose to stay with an investor-owned utility don’t get stuck paying back all the costs of long-term financial obligations,” according to staff background information prepared for PUC Commissioner Carla Peterman.
The community choice aggregation (CCA) program allows cities and counties to buy or generate electricity and bypass the IOUs, such has existed for years in Sacramento, which has a municipal utility district. A map of CCA activity in California can be seen here.
At least two exit fee formulas have been proposed. One was drafted by an administrative law judge, the other by Peterman.
Community choice aggregation programs are formed by local governments and all customers within the territory are initially enrolled in CCA service, but they can choose to return to bundled, IOU service at any time.
Peterman said both options put caps on PCIA charges to ease the financial impacts on departing customers, and both maintain the companies’ ability to achieve the state’s environmental goals. The details and the dollars of the formulas will be discussed Thursday, Oct. 11, when the PUC decides the issue at a public meeting in San Francisco.
“The difference is what costs should be included. I’ve removed the 10-year limit on costs because they go beyond that,” Peterman said, adding that the formula is about “proportioning costs that have already been paid.”
Some allies of the California Community Choice Association, which advocates on behalf of CCAs across the state, want the CPUC to reject Peterman’s proposal, contending it will cause rates to increase for consumers.
Community choice aggregation programs are formed by local governments and all customers within the territory are initially enrolled in CCA service, but they can choose to return to bundled, IOU service at any time. CCAs say they offer reliable, renewable energy supplies, with excess revenues being reinvested into the community for clean-power projects and for programs geared to under served communities.
Currently, the state has 19 active CCAs, including East Bay Community Energy, a new CCA in Alameda County. It comprises 11 cities, including Berkeley, Dublin, Oakland, Livermore and Hayward. Earnings are reinvested back to the community in the form of local programs and clean power projects.
If PCIA bills go up, programs will be cut to balance it out. Some CCAs have not launched for fear of a decision to disrupt their business models.
“The commissioner’s proposal would drastically increase the PCIA amount charged to customers,” said Melissa Brandt, an East Bay Community Energy spokesperson. “CCAs may have to reduce program offerings and renewable goals and significantly back step,” she added.
The CCAs favor the administrative law judge’s proposed decision, stating it “strikes a reasonable balance with respect to long-term cost reduction.”
Neal Reardon, director of regulatory affairs for Sonoma Clean Power in Santa Rosa, said if the commissioner’s proposal goes into effect, “we are effectively being told to change our business model,” he said.
Sonoma Clean Power offers what it calls an Advanced Energy Rebuild program that allows those in homes, condos and apartments destroyed by the October 2017 wildfires to save up to $17,500 on the cost of rebuilding. Consumers can also opt to get paid for generating clean energy and can get paid for having roof-top solar or wind turbines.
If PCIA bills go up, programs will be cut to balance it out. Some CCAs have not launched for fear of a decision to disrupt their business models, Reardon noted.
“CCAs aren’t guaranteed cost recovery the way utility companies are,” Reardon added. “We won’t abandon all programs on day one, but long-term programs won’t work,” he said. Plans for several CCA program launches have been halted due to uncertainty of the vote, Reardon said.
Based on PG&E and CPUC projections, by 2019, 46 percent of energy consumers in the state will be served by PG&E, 44 percent will be served by CCAs and 10 percent will be served via Direct Access for retail customers.—
Editor’s Note: Corrects 10th graf to show that CCA customers can return to their earlier service at any time.
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Reardon states: “CCA’s aren’t guaranteed cost recovery the way utility companies are”. This is a false statement. CCA’s are joint powers authorities regulated by their elected City council, County supervisors, or muni-lite board. As with SMUD, residents pay for all costs & overheads through rates that are charged. Should a JPA, city, county or municipality be unable to meet their financial obligations, the bond holders and/or property owners are ultimately responsible. The CCA’s are NOT entrepreneurial entities at-risk. They are “intra-preneurial” endeavors at best, with local government agencies and employees who, through arbitraging the IOU regulatory rate versus energy procurement costs (net gain), seek “contributions” to their general fund for local programs. Energy flows based on the path of least resistance, and is inter-connected across the Western Grid. Since we are all connected, energy and climate change is NOT a local issue.
The PU Code (454.5) is unambiguous: IOU purchases made with Commission approval will be recovered from ratepayers. This is what utilities receive in return for Commission approval of specific contracts. CCAs don’t seek this approval from the Commission, and they aren’t granted the State-sanctioned cost recovery in return. And that’s when things go as planned. We haven’t seen what would happen if a JPA were unable to meet its obligations, but I doubt a CCA would be given a ratepayer-funded bailout based on the “too big to fail” position utilities enjoy.
Reardon is honest. Under the law (Section 6500 of CA Gov Code), joint powers authorities are allowed to “fire wall” their financial obligations from their constituent member governments. All CCA joint powers agreements have done so — very intentionally. Similarly, the power contracts are explicit in this regard. Power suppliers and financiers have no recourse to the municipalities much less a “ratepayer-funded bailout” — just the CCA power agency, whose customers are free to leave if they want. So really, CCAs are pushing risk onto the private sector instead of continuing to let the State regulator and monopoly utilities blindly put ratepayers on the hook for all the decisions they make.
In terms of their energy risk management practices, most CCAs are actually more innovative, competitive and cost-conscious than the monopoly utilities. If you want to know more about how they’re actually structured as power agencies, I just put out this deep-dive article: https://www.linkedin.com/pulse/understanding-community-choice-energy-revolution-samuel-golding/
Also, the real story here is that we the State regulator is trying to legislate from the bench. It was pure politics, tail wagging the dog style — from the same captured regulator that in recent years has given us the San Bruno explosion, the FBI & AG raid on the CPUC president’s house (leading to a $750 million revision to the SONGS nuke plant settlement in the public’s favor), et cetera, ad infinitum…
So when Commissioner Peterman states “I’ve removed the 10-year limit on costs because they go beyond that”… what she really did was put BACK IN utility generation that wasn’t supposed to be guaranteed cost recovery any longer. She is attempting to authorize INDEFINITE cost recovery for ALL utility owned generation — i.e. reversing the regulatory compact that utilities had a 10-year cap on cost recovery. That reversal likely has significant legal errors, and remember it was the 10-year cap was put in place to guide the utilities into a restructured / competitive market framework.
Tellingly, she issued her re-write of the judge’s decision afterwards (not concurrently, as is usually the case) and in response to heavy utility lobbying. Similarly, she de-emphasized Phase II proceeding issues that were intended to diminish the utilities’ role on the generation side (like refinancing). Other edits on that front (without discussion or explanation) include removing the requirement that the utilities engage in “good-faith” negotiations on prepayment, so now that’s dead (its entirely voluntary on the utilities’ part to set terms, which will be onerous and unfair, if offered at all to CCAs).
Wake up — this is a monopoly power grab going down!