Three Coachella Valley cities indefinitely delayed the launch of a new power company, meaning residents of Palm Springs, Cathedral City and Palm Desert are still getting their electricity from Southern California Edison — at least for now.
Local officials unexpectedly postponed the launch of Desert Community Energy just before its planned August 1 start date, citing a recent spike in natural gas prices and a forecast of lower-than-expected electricity rates from Edison. Those factors, officials said, could have made it difficult for Desert Community Energy to achieve its goal of offering lower rates than Edison without running a deficit, at least in the short term.
Across the state, the outlook for locally run electricity programs is looking up, advocates say. For years, SoCal Edison and other investor-owned utilities, including San Diego Gas & Electric and Pacific Gas & Electric, have wanted to raise the fees that departing customers must pay to their former power providers. But the California Public Utilities Commission released a proposed decision last week that largely rejects the big utilities’ requests, handing a major win to the state’s growing community choice movement.
The decision from the public utilities commission, if adopted next month, would remove a source of financial uncertainty for the 150,000 residents of Palm Springs, Cathedral City and Palm Desert who would be the first customers of Desert Community Energy. But it’s unclear if and when the local power provider will launch. Desert Community Energy’s board of directors voted late last month to sell the energy contracts they had purchased, and there’s currently no timeline for securing new power supplies.
Desert Community Energy is administered by the Coachella Valley Association of Governments and a Florida-based consulting firm called The Energy Authority. In a July 25 staff report, Desert Community Energy’s three-member board was told that Edison “recently projected close to a 6% reduction in its 2019 generation rate,” compared to a previous estimate. The staff report also said a spike in natural gas prices, caused in part by record heat, was leading to higher wholesale electricity prices, which could add as much as $10 million to Desert Community Energy’s supply costs in 2018 and 2019.
“The point of Desert Community Energy is partly to offer lower rates for customers, so with that sudden spike in energy prices, and (potentially lower) rates for Edison, the ability for us to offer lower rates was less certain,” said Katie Barrows, director of environmental resources at the Coachella Valley Association of Governments, or CVAG.
But some advocates for locally run energy programs questioned that explanation.
Paul Fenn helped bring the concept of “community choice” energy programs to California in 2002, after writing the nation’s first community choice bill in Massachusetts. He said Desert Community Energy’s explanation for delaying the launch “strikes me as spurious.” Price forecasts from investor-owned utilities like Edison, Fenn said, are easy to manipulate. And if a community choice agency is worried about the price of natural gas, he said, it should buy an energy portfolio that doesn’t have as much gas in it.
“It shows either a kind of superficiality or a kind of inflexibility in their approach,” said Fenn, who runs the consulting group Local Power. “It sounds like excuses to me.”
Al Weinrub is a coordinator for the Local Clean Energy Alliance, an Oakland-based group that promotes community choice. He said he’d never heard of a local energy program choosing not to launch because of higher-than-expected natural gas prices.
“If you don’t have a model of delivering energy that shows that you’re going to be pretty much competitive always with the utilities, then you’re sort of in trouble,” Weinrub said. “The fact that they have a situation where they’re about to launch and all of a sudden there’s a question of viability? That sounds an awful lot like some very poor planning.”
Barrows said Desert Community Energy anticipated fluctuations in natural gas prices and had taken hedging actions to protect against price swings. But she said the recent uptick in gas prices was more dramatic than local officials expected. She said Desert Community Energy could have weathered the spike if it was already up and running.
“The first step for a (community choice program), once revenues are received, is to start building a reserve fund that gives you some flexibility to weather those changes. Just starting out for us, we didn’t have that,” Barrows said.
Desert Community Energy had planned to offer two energy options for customers: The “Desert Saver” energy mix, which would have had 35 percent renewable energy and an additional 15 percent carbon-free energy, and a 100 percent carbon-free option. As with all community choice programs in California, customers would have been able to opt out and keep buying power from Southern California Edison. Edison would have continued to handle billing and power distribution for everyone, meaning Desert Community Energy customers may have noticed little to no difference in their electricity service.
Some Coachella Valley residents have already ditched Southern California Edison. Rancho Mirage launched a locally run energy program earlier this year, becoming the first city in the Coachella Valley to do so. Last month, the city council approved $500 rebates for Rancho Mirage residents who install rooftop solar panels. Riverside County is also working on a local energy program covering unincorporated areas, including parts of the Coachella Valley, such as Bermuda Dunes, Mecca and Thousand Palms.
Statewide, the future of community energy choice programs is bright, advocates say — especially in light of a proposed decision from the California Public Utilities Commission.
Investor-owned utilities and community choice advocates have long sparred over the monthly payments that customers of local energy programs are required to make to their former utilities. Those payments, known as exit fees, cover the cost of long-term contracts utilities have signed to provide power to their customers. The idea is that customers who remain with the investor-owned utilities shouldn’t have to pay higher bills to cover the cost of electricity purchased to serve customers who then choose to leave.
The debate over how to calculate exit fees has intensified in recent years, as more cities and counties have taken steps to start their own power companies. There were nine community choice programs operating in California by the end of 2017, serving about 10 percent of the state’s electricity consumption, according to a recent reportfrom Next 10, a San Francisco-based think tank. By 2020, the statewide market share of California’s three major investor-owned utilities could drop to 57 percent, the think tank’s research showed.
Edison, SDG&E and PG&E requested changes to the exit fee formula that would have raised the fees, which critics said would have made it difficult for new community choice programs to get started. But the California Public Utilities Commission largely rejected the utilities’ requested changes in a proposed decision released last week.
“It was quite a fair and reasonable, sensible outcome that makes the utilities whole, which is what’s required by law, but at the same time allows community choice programs to thrive,” said Nicole Capretz, executive director of the Climate Action Campaign, which has lobbied for community choice in San Diego. “The decision says you can only raise the fee every year by a certain amount. That allows for better planning and preparing.”
In a statement, Southern California Edison said it is disappointed the commission’s proposed decision “does not go far enough” in protecting Edison’s remaining customers from higher electricity rates as more people join community choice programs.
The proposed decision, Edison said, “did not adopt key provisions in the utilities’ proposal that would assure customer fairness in the division of the costs of long-term renewables contracts and preserve the value of current utility portfolios.”
The utilities commission is scheduled to vote on the proposed decision next month.
Imperial Irrigation District customers in the eastern Coachella Valley — and in Rancho Mirage and other cities that start community choice programs — will continue to get their electricity from IID, which is publicly owned and offers lower rates than Edison.
Sammy Roth writes about energy and the environment for The Desert Sun. He can be reached at firstname.lastname@example.org, (760) 778-4622 and @Sammy_Roth.
Your power company is still Southern California Edison — for now, by Sammy Roth, Desert Sun, August 7, 2018.