Millions of Californians could abandon their investor-owned electric utilities over the next few years, by joining “community choice” energy programs run by local governments.
But the cost of ditching a utility like Southern California Edison could rise under two proposals scheduled for a vote Thursday at the California Public Utilities Commission.
Local officials in the Coachella Valley, Los Angeles County and San Diego County have embraced community choice programs as a way to reduce electricity bills and increase reliance on solar and wind power. But under state law, there’s no way to make a clean break from an investor-owned utility. When a home or business leaves Edison, Pacific Gas & Electric or San Diego Gas & Electric, the customer is still required to pay an “exit fee” to their old energy company every month, to help cover the costs of long-term contracts the utility signed to provide them with electricity. The goal is to make sure the utilities’ remaining customers don’t face higher bills as more communities jump ship.
State officials are scheduled to vote Thursday on two proposals that would change how exit fees are calculated. Both proposals could result in exit fees going up, but one plan would raise the fees more. The steeper increase is favored by the big utilities.
Community choice advocates see the utility-backed proposal as a threat to the popular energy programs, which allow local officials to decide what kind of power to buy for their communities and how much to charge. Critics say the utility-backed proposal would make it more difficult for community choice to succeed in places like the Coachella Valley, where officials recently delayed the launch of a program covering Palm Springs, Cathedral City and Palm Desert partly due to uncertainty over exit fees. Existing community choice programs could be left with less revenue to invest in clean energy.
Beth Vaughan, executive director of the California Community Choice Association, an advocacy group, said local energy programs would be left with fewer overall funds to incentivize customer programs, such as rooftop solar or other clean energy initiatives.
“Maybe they’ll offer the same rate, but they’re not going to have an electric vehicle program, or some kind of program in disadvantaged communities,” Vaughan said.
ommunity choice is a fast-growing movement. California now has 19 community choice aggregators, or CCAs, 11 of which launched this year. More are in the works, including one in the western Coachella Valley, one in San Diego County and one that would serve unincorporated parts of Riverside County. Some experts have predicted the three big utilities could lose 80 percent of their market share in little more than a decade.
While local governments and many renewable energy advocates support community choice, some regulators are concerned. Michael Picker, president of the California Public Utilities Commission, released a controversial report earlier this year arguing that the move away from centralized electricity providers could lead to another energy crisis.
Most of the debate surrounding community choice over the past few years has centered on the exit fees. And Thursday’s vote could be the biggest flash point yet in that debate.
Thursday’s decision may have less of an impact in Southern California than in Northern California. Southern California Edison predicts that under its preferred proposal, the exit fee would average 1.98 cents per kilowatt-hour for residential customers in 2019, compared to 1.63 cents per kilowatt-hour under the plan favored by community choice advocates. For an average residential customer in the Coachella Valley, that translates to a $5 monthly difference over the summer and a $2 monthly difference in the winter.
For Rancho Mirage, which launched a community choice program this year, either proposal would raise the exit fees paid by local residents, according to city manager Isaiah Hagerman. But while the utility-backed proposal would be worse for community choice in general, Hagerman said, it’s not a deal-breaker for Rancho Mirage.
“Even under the worst-case scenario, we’re still saving our customers money,” he said.
Officials at Sonoma Clean Power, a community choice agency serving 225,000 homes and businesses north of the Bay Area, are more worried. Deb Emerson, Sonoma’s director of power services, said the agency just finalized one of the state’s first solar-plus-storage contracts, a deal to buy 50 megawatts of solar power and 5 megawatts of battery storage from a new facility in Stanislaus County. That kind of contract would be harder to sign if state officials approve the utility-backed exit fee proposal, she said.
“Those costs have to be paid somehow,” Emerson said. “You would have less money for programs, less money to buy and develop long-term renewable energy in California.”
The utility-backed proposal was written by Carla Peterman, one of five members of the California Public Utilities Commission. In an interview with The Desert Sun, Peterman said community choice advocates are making “unsubstantiated claims” about the possible impacts of her proposal. She said exit fees make up a small proportion of the average community choice customer’s energy bills to begin with, and the fees would only rise by a few percentage points for customers leaving SoCal Edison under her plan.
Peterman described her exit fee proposal as a middle ground between what community choice advocates and utilities have asked for. It’s more favorable to utilities than the original proposal released by utility commission staff in August, which is supported by community choice advocates and opposed by utilities. But it still doesn’t give the utilities most of what they asked for. Peterman said her plan most closely aligns with ideas outlined by the Utility Reform Network, a San Francisco-based ratepayer watchdog.
“My proposal isn’t utility-friendly, or at least it isn’t meant to be. My proposal is meant to be consumer-friendly,” Peterman said.
The main difference between the two proposals deals with “legacy” utility-owned power plants that were built before 2002. Under the commission staff’s original proposal, the big utilities wouldn’t be allowed to charge departing customers for the continued costs of owning and operating those power plants. Under Peterman’s proposal, they would be.
Matthew Freedman, an attorney with the Utility Reform Network, said community choice advocates are overstating the difference between the two proposals.
“They have argued that the difference between their proposal and the other proposals would mean the life or death of (community choice),” Freedman said. “Their entire presentation in this case has been full of histrionics.”
Whichever proposal the commission approves, homes and businesses that remain with an investor-owned utility should see their energy bills go down slightly, relative to what they would pay if the current exit fee formula stays in place. Higher exit fees for customers leaving SoCal Edison, PG&E and SDG&E would result in the investor-owned utilities charging lower energy rates for their remaining customers, Peterman said.
“It’s a zero-sum game. It’s one fixed pie of costs,” she said. “We knew that by changing the formula, somebody’s rates would go up and somebody’s rates would go down.”
The investor-owned utilities have argued that getting the exit fees right is a matter of fairness, and making sure their remaining customers don’t get stuck with high costs they can’t afford. In an emailed statement, Edison said that Peterman’s proposal “goes a long way to protecting customers and addressing these critically important issues,” and that the commission staff’s proposal “does not go far enough to assure customer fairness.”
Pacific Gas & Electric spokesperson Lynsey Paulo made a similar argument, saying in an email that Peterman’s proposal “is more effective at eliminating this unfair and illegal subsidy” that PG&E believes its customers are paying under the current exit fee formula.
San Diego Gas & Electric spokesperson Helen Gao said in an email that Peterman’s proposal “represents a significant improvement” over the plan from commission staff.
“It helps to eliminate the large, unlawful cost shifts inherent under the existing (exit fee) methodology,” Gao said.
Sammy Roth writes about energy and the environment for The Desert Sun. He can be reached at email@example.com, (760) 778-4622 and @Sammy_Roth.
California is about to decide how much you have to pay to ditch your electric utility, by Sammy Roth, Desert Sun, October 10, 2018.