Will the CPUC let no good deed go unpunished?

Community Choice Agencies lead on state clean energy goals, but may be penalized by CPUC on 9/27

By Robert Freehling

On September 27, the California Public Utilities Commission (CPUC) is expected to decide on several elements for the longstanding Power Charge Indifference Adjustment (PCIA) exit fee issue. Before them is a Proposed Decision (PD), and Alternate Proposed Decision (APD), and they can also vote a on a negotiated set of agreements. Some if not most Community Choice Agencies (CCAs) will face major challenges if the APD is adopted by the CPUC.

On Sept 12 Greentech Media (GTM) published “How Community Choice Aggregation fits into California’s Clean Energy Future” that delves into the matter. Much of the narrative in the article is misleading through a hazardous blend of ignorance and propaganda.

For example, the article implies that only the utilities are paying for transmission and distribution: “While CCAs take over the job of procuring energy for their customers, which allows them to exceed utility renewables mandates and increase the roster of clean energy projects being built in the state, utilities remain responsible for all other aspects of keeping the power flowing, including the costs of maintaining transmission and distribution grids and managing customer billing.”

The article fails to make it clear that all CCA customers pay the same rates for transmission and distribution as “bundled” IOU customers who get their electricity from the utilities. CCA customers also pay for several energy costs of the utility, even though the CCA customers do not get even one kilowatt-hour of this electricity. The CCA customers, in addition to paying for their own electricity, as well as transmission and distribution, are also subsidizing energy supply for the customers who stay with the utilities.

When this is all added up, CCA residential customers in PG&E’s territory pay about 72% of their electric bill to PG&E. So, this complaint that the utilities aren’t getting their money is ridiculous; they get the lion’s share of the revenue from CCA customers.

Yet the GTM article cites – without correction – the claim that CCAs are an “existential risk” to the utilities: “While CCAs remain a small percentage of the state’s utility customers, the [CPUC] estimates that up to 85 percent of the state’s retail load could be served by CCAs, as well as by direct access providers, by 2025. These trends are seen as an existential threat for California’s investor-owned utilities.”

This narrative has multiple layers of error, by adding an often incorrectly cited figure about market share. The actual quote, from a CPUC customer choice staff paper in May 2017 states:

“Between rooftop solar, [CCAs] and Direct Access providers (Energy Service Providers or ESPs), as much as 25% of Investor Owned Utility (IOU) retail electric load will be effectively unbundled and served by a non-IOU source or provider sometime later this year. This share is set to grow quickly over the coming decade with some estimates that over 85% of retail load served by sources other than the IOUs by the middle of the 2020s”

The GTM article fails to mention that 1) this was not the CPUC’s estimate, but merely the CPUC staff citing “some estimates,” 2) this figure also included customer’s generating their own electricity, which the California Energy Commission forecasts will supply at least 15% of electricity consumption in California by the mid-2020s, and 3) the CPUC analysis omits consideration of about 50 publicly owned utilities that supply roughly 25% of the state’s electricity. While the growth of CCA is a dramatic change, these omissions greatly exaggerate both the relative magnitude and significance of what is actually changing, and inflate the prejudicial basis for taking action that would undermine CCAs.

Another important point is that since deregulation in the 1990s, the utilities have divested most of their power generation. With retirement of California’s nuclear plants, the investor-owned utilities will only retain some hydropower, a handful of gas plants, and an almost infinitesimal amount of renewable energy. Most of the utility electricity supplies are on contracts from third party vendors. These are normally “pass through” costs, where the utility is not supposed to directly profit, a policy called “decoupling” that is intended to take away utility profit incentive for selling more electricity.

State law requires the CPUC to impose fees on CCAs to cover utility stranded costs from these contracts, which the CPUC has already done. Residential CCA customers in northern California today pay about 5 cents per kilowatt-hour to PG&E for various energy contracts through seven different line items on their monthly bill, even though CCA customers don’t get any actual electricity from these sources.

Therefore utility revenue and profits are strongly buffered from customers who leave to CCAs. The CPUC decision on the CCA fees would not substantially change PG&E’s revenue or profits; its main effect would be merely to change who is paying – bundled customers would pay a little less, while CCA customers would pay a little more.

The California Community Choice Association (CalCCA) has estimated that exit fees in PG&E’s service territory would increase by about half a cent per kilowatt-hour, which implies that PG&E’s bundled customer would pay about half a cent per kilowatt-hour less. This change is out of a current average residential retail rate of about 24 cents per kilowatt-hour. Marin Clean Energy customers that currently save about 2% on their electricity bill might then be paying about 1% more than PG&E customers. PG&E customers would see a savings of $2 per month on a $100 electric bill, while MCE customer would pay about $2 per month more.

While a change of $2 per month is small for PG&E and MCE customers, a combined relative change of $4 is significant, and would be a huge shift in marketing narrative. If customers leave PG&E, the utility gets to charge CCA customers for “stranded costs” for many years. But CCAs only charge a small administrative fee for customers who go back to the utility, meaning CCAs are on the hook for any overprocurement of electricity that they no longer need.

If the unfavorable APD is adopted, to stay competitive CCAs would need to make very difficult decisions – perhaps less renewable energy, or cutting back community programs, or staff reduction, or having no extra money to put into their rate stabilization funds, or accepting higher rates imposed by the CPUC. Each of these choices undermines the stability and benefits of CCAs, and risks bad publicity, customers leaving or becoming disenchanted with CCAs, and local politicians delaying implementation of new CCAs.

Of course, that is exactly what the utilities want.

The revenue threat – to the extent that it is real – is not symmetrical. The article’s claim is exactly the opposite of the truth – CCAs are not in any way an existential threat to the utilities, but the utilities could become an existential threat to CCAs if regulators and the media abandon their responsibility to be checks on power in a democratic society.

Worse, as the GTM article points out, CCAs have far exceeded the state requirements for renewable energy, and provide cleaner supply than the utilities. The CCAs in northern California do this at electricity generation costs about 40% less than PG&E is able to provide, although customers only see a small fraction of those savings due to all the utility fees.

CCAs also benefit the utilities through the back door, because the utilities’ keep the same amount of contracted renewable energy, but will have to serve fewer customers. This increases the utility’s percentage of renewable energy (which is how California measures compliance with the state’s renewable energy standard), and lowers the utility carbon emissions, without the utility buying any more clean energy. Meanwhile the burden to replace and increase that renewable energy for the customers who leave is put onto the CCAs.

The governor’s executive order, recently announced before the world, commits the state to working with and supporting community efforts to meet decarbonization goals: “State agencies will engage the support, participation, and partnership of universities, businesses, investors, and communities, as appropriate, to achieve the goals contained in this order.”

Unfortunately, the CPUC, tugged by the old temptation of letting no good deed go unpunished, is threatening to undermine those community efforts just as they are rapidly expanding around the state and on the verge of success.

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Robert Freehling is an independent consultant, focused on state and local clean energy policies. He works primarily with NGOs on legislation and regulatory proceedings in the electric utility sector. He worked with Local Power, Inc. from 2002 to 2012 to support the development of community choice aggregation and other local clean energy programs.

 

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