Opinion
Fair ‘exit fee’ critical to renewable energy future
A concentrated solar energy thermal plant in the Mojave Desert. (Photo: Piotr Zajda, via Shutterstock)While utility responsibility related to California’s devastating wildfires is dominating headlines and the agendas of policymakers, flying below the radar is a pending decision from the California Public Utilities Commission to change the formula for a fee charged to energy consumers who leave the power supply of investor-owned utilities (IOUs) like PG&E and instead get power from local community choice aggregation programs, also known as CCAs. The new formula could radically alter consumers’ energy choices.
CCAs are increasing in popularity in California and for good reason. Authorized by the Legislature to help prevent another energy crisis, CCAs are created and run by local governments to provide clean, affordable energy that meets specific community needs. Unlike the IOUs, CCAs are transparent entities accountable to local policymakers and community members, and available funds are reinvested in local projects, rather than filling the pockets of shareholders.
An alternate proposal, however, would deal a devastating blow to the flourishing CCA movement in California, while undermining the legislative intent to foster CCAs.
The PCIA, or Power Charge Indifference Adjustment, is an “exit fee” charged by IOUs to customers that switch to another provider of electricity like community choice aggregation. The charge compensates the utilities for electricity they bought in the past at prices that are now above-market.
How the CPUC designs the new PCIA fee will greatly impact the CCAs’ ability to compete on a level playing field against these titans of energy. For months, key stakeholders have weighed in with their own proposals. The California Community Choice Association, which represents CCA programs in California, designed a win-win proposal that would lower costs for both IOU and CCA electricity customers by $2 billion through smarter, and more accountable portfolio management.
There are now two final proposals before the Commission. The first proposal, crafted by an administrative law judge, represents a reasonable balance of competing interests by providing IOUs with an incentive to manage their energy portfolios in a more prudent manner.
An alternate proposal, however, would deal a devastating blow to the flourishing CCA movement in California, while undermining the legislative intent to foster CCAs.
The alternate would significantly jeopardize CCAs’ ability to invest in long-term renewable resources, local programs for electric vehicles and energy efficiency, and those targeted for disadvantaged communities. Whereas the first proposal benefits all ratepayers and reduces costs for everyone, the alternate protects the IOUs and their shareholders, allowing them to continue their mismanagement of resources, in spite of knowing that communities have departed for CCA energy programs.
California continues to lead in innovative clean-energy technology and carbon-reducing energy policy, and CCAs are playing an increasingly vital role in achieving local and state climate goals. CCA expansion across the state speaks to the community interest in having choice and diversifying the state’s energy portfolio to prevent over-reliance on IOUs. Regulators should facilitate this progress, not impede it.
Consumers benefit when they have alternatives and a fair and balanced PCIA assures those options across California. The state should adapt its regulatory structure to encourage investments in clean energy, support local governance (that is people, not profits, focused) and foster competition to keep costs down. A reasonable PCIA is an essential component to a fair and balanced energy market.
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Ed’s Note: Beth Vaughan is the executive director of the California Community Choice Association.
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I’m not entirely sure why utilities need to be compensated when a customer decides an alternative product is better for them. Do we compensate service providers every time we decide to switch to other offers? Should someone have to pay extra fees to Netflix if they decide to unsubscribe? Do we pay the post office exit fees for the loss of business due to electronic mail offerings? I’ve certainly never experienced such reimbursement demands from any of the other industries that have lost customers due to technological developments yet somehow the old world energy gang seems to think they are above everyone else. Talk about corporate welfare.
The compensation is actually payment for energy that the utility procures on behalf of each ratepayer. These long term procurements were, and are, required in order to assure that the utility has adequate power to serve planned load, as is required by regulators.
When a customer departs from the utility, presumably “for a better deal,” the energy commitments made by the utility on behalf of the customer must be paid. If the customer (or CCA) does not pay this cost, the ratepayers that remain with the utility are forced to pay, resulting in a shifting of costs that are statutorily not permitted. Citing Netflix is not a good example since Netflix does not serve a vital utility function that maintains the stability of California’s electric infrastructure.
The issue is that the IOUs have known about the potential of CCAs since 2002, and did not change their contracting at all. Instead, they kept contracting very long-term (20-25 years) locking in those customers whether they left or not. This is the case of the IOUs doing whatever they wanted (and still do) and not being prudent, knowing their shareholders would be protected… too big to fail, again at our expense!
I think the experience of failed deregulation showed nearly everyone how sensitive the market is. You may recall the process formula that locked IOUs into paying escalating wholesale energy prices circa 2000, ultimately resulting in PG&E’s bankruptcy and a subsequent need for DWR to procure power on behalf of the retail market. Today we find that CCAs represent a new phase of market dynamics that manifests in many ways.
CCAs did not carry their fully required Resource Adequacy, resulting in the CPUC’s need to issue Resolution E-4907 so that bundled customers were no longer burdened with paying this CCA cost.
We also find that CCAs are not constructing net-new California-based renewable resources to the degree needed. Here we see CCA advertising that touts resources such as Rising Tree III (wind) and RE Kansas (solar) as created by CCA when these resources were bankrolled by SCE and PG&E, respectively. CCAs were merely involved in short term contracts until SCE and PG&E began taking deliveries.
But that it not the reality that CCAs advertise to consumers and elected officials.
Indeed, CCAs’ short-term contracts and CCAs exploitation of renewable energy certificates (purchased from out-of-state generators in combination with actual fossil power deliveries to California consumers) point to the on-going problem in the market, as recently pointed out in the CPUC’s Green Book. CCAs have relied upon financial instruments to cover over a fundamental weakness in their operations. CCAs’ records, as well as the lack of financial strength is all the more reason to assure stability through IOU procurement practices.
Your note, above, only skims the surface of a complex issue.
By the way, why aren’t you posting your complete (and real) name?
Consumers have no choice with CCAs, cities or counties just appoint boards that become power buyers, something they have no business being. CCAs are a complete sham and will end badly. Think ENRON.
And you have any kind of choice with an IOU monopoly? You don’t think CCAs employ consultants that know just as much about electricity and power buying as the IOUs do? It’s pretty easy to see that CCAs do more for your community than an IOU will.
Actually, CCAs are motivated to purchase power at a low cost. It is true that the quality of the contracts will be only as good as the consultants, but there are no board members involved in the power operation. Their job is to make sure that management hires top quality consultants. IOUs have no motivation to get low cost contracts because the maximum cost that the PUC will accept goes into their rate base and they get a 10.5% return for their investors on that base. That is a big reason why there are these enormous locked in costs that they are trying to distribute out to the CCAs. The CCAs are buying far cleaner and far cheaper power than the IOUs. There is a rate crisis about to emerge in CA and it is being exposed by the CCAs. This goes to the heart of how the PUC has placated the IOUs and enabled their rates to soar. I think this is why Peterman is proposing a CCA-killer strategy. If it goes through the CCAs will take the issue to the legislature.