The state public utilities commission has said in multiple hearings and reports that it is afraid community choice agencies cannot be relied on to meet the state’s renewable energy goals or procure enough power to ensure the Independent System Operator, which manages the grid, is fully supplied at all times.
It wants the right to tell community choice agencies how to meet the state’s energy needs, especially how to reduce greenhouse gas emissions, and it wants utilities to be central buyers for the state, buying power to ensure ample supply and assigning the costs to the community choice agencies in their area.
Community choice agencies disagree.
“To shift the decision-making authority on programs and power contracts from locally-elected officials to the CPUC is a mistake,” Sonoma Clean Power replied in a report.
Instead, community choice agencies argue for limited central procurement, as a backstop to cover electricity that community choice agencies or others have not contracted for.
“That makes sense, because it keeps the lights on while ensuring that public power providers have an option to purchase the energy they need at lower prices,” said Sonoma Clean Power CEO Geof Syphers.
Syphers notes that in the past the commission has approved, sometimes even required, the high-cost contracts that have helped make electricity rates in California among the highest in the nation.
“We do not want to repeat that mistake,” Sonoma Clean Power said in its report.
But others say California has made important progress toward a cleaner grid mainly because utilities have procured new clean-energy resources under long-term contracts.
Now utilities losing customers to community choice agencies are also losing their appetite for buying power.
For example, PG&E has said it will close its Diablo Canyon nuclear power plant by 2025. At first it said it will try to replace the nuclear energy with renewables. But more recently it has decided not to replace that power at all because so many of its customers are leaving for community choice.
Can fragmented community choice agencies be counted on to do that heavy lifting, to meet state goals?
The public utilities commission has given stakeholders a few months to decide how the central procurement plan will work.
As for utilities, they’re reluctant to take on the central-buyer job, so Sonoma Clean Power and PG&E are working together on this issue.
Southern California Edison noted that the last time the state set up a central procurer, the CalPX or Power Exchange in 1997, it was bankrupt by 2001.
... and who pays for it?
California’s investor-owned utilities want the public utilities commission to increase the exit fee that community choice customers have to pay the utilities when they leave the utility.
The purpose of the fee is to reimburse the utility and its ratepayers for power they’re paying for but no longer need.
Community choice customers already pay PG&E an exit fee that’s equal to about half of the cost of power, excluding delivery, for a typical residential customer. This fee appears on their bill as a Power Charge Indifference Adjustment.
Syphers said the principle of the fee is fair. The board of directors for Sonoma Clean Power, mostly elected city and county officials who represent constituents who are both PG&E and Sonoma Clean Power customers, say they want fairness for both.
But they have concluded that the fee, calculated in secret with data recently revealed to include $200 million in errors, is higher than it needs to be, and they are angrily challenging it. They think PG&E should have to make an effort to bring its costs down, instead of just charging Sonoma Clean Power customers more.
Syphers estimates that the Power Charge Indifference Adjustment is generally costing his customers about $70 million a year, or $314 each.
Here’s the background on the exit fee:
When customers leave PG&E to get their energy elsewhere, as from Sonoma Clean Power, the utility doesn’t lose money.
That’s mainly because 40 years ago the California Public Utilities Commission decided utilities would not make or lose money when they buy electricity to sell to their customers. They would break even. Instead, they’d make money on distribution, and they’re allowed a profit when they build and operate power plants.
The idea was to promote conservation by removing the utilities’ motive for selling more energy. In the utility business, this is called decoupling.
So when customers leave PG&E, the financial danger for PG&E is not declining sales. The danger is the cost of the energy PG&E already bought for the departing customers — with commission approval — and now doesn’t need. This can include expensive renewables that regulators required the utility to buy.
That’s why the state legislation that allowed the creation of community choice agencies said PG&E can charge the departing customers a fee if PG&E estimates that it will lose money when it resells the unneeded electricity into the open market.
In recent years the fee has taken some big leaps. That’s because wholesale energy prices are low now, and PG&E claims it can’t sell its extra power for enough to cover its cost.
Sonoma Clean Power benefits from those lower wholesale energy prices when it buys electricity for its customers, so some of that benefit should flow to PG&E through the higher fee, legislators decided.
If wholesale prices rise in the future, the fee should go down. Historically, the fee decreased by 62 percent from 2012 to 2013 and increased by 211 percent in the three following years, according to a UCLA report. Since then it’s up about 43 percent.
Syphers worries that decoupling means PG&E has no incentive to make sure it acquires the best-priced power, or sells unneeded power at the highest possible price, since PG&E profits are guaranteed, no matter what.
The public utilities commission is studying the exit fee, and community choice agencies are deeply involved in the conversation.
If the commission keeps pushing the fee higher, it could eventually push community choice rates above PG&E, sending Sonoma Clean Power customers fleeing back to PG&E.
“This is a big deal,” Syphers told his board.