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Most people have basically no choice about where they get their power from – SDG&E’s monopoly covers 4,100 square miles of Southern California. Soon, that is likely to change as many California cities, including San Diego, look to start buying power for their residents.
But even if the city begins to compete with San Diego Gas & Electric, people may still be forced to pay SDG&E for power for decades to come.
The state allows companies to keep making people pay for power, even if people no longer use, want or need it.
That’s because SDG&E and other power monopolies – Southern California Edison and Pacific Gas & Electric – assumed their monopolies would continue far into the future, so they signed long-term contracts to buy electricity for their customers. That bet no longer seems to make much sense, but now there’s a rush to protect customers who stick with the companies from being stuck paying for a glut of power.
It’s like ordering a bunch of pizza for a raging party. Power companies want to make sure everybody pays for the pizza, even the people who left before the delivery guy came.
SDG&E, Edison and PG&E rolled out a new plan last week for how much and how long they can keep charging people who switch to buying power from a government-run agency known as a community choice aggregator, or CCA.
The companies want to make customers pay for the power they’ve already bought, even if cleaner and cheaper power is available elsewhere. And they want to keep customers on the hook for decades to come.
“There are a lot of ways to sabotage – with some sort of poison pill – the CCA movement,” said Lane Sharman, founder of a nonprofit that advocates for community choice. The power companies’ proposal seems like it could be just such a pill, he said.
For a community choice to make financial sense for ratepayers, it will have to be able to buy power so cheaply that its customers can afford both its power and paying off SDG&E.
Marin Clean Energy, the state’s first community choice program, has managed to do this. Its power is consistently cheaper than its competitor, PG&E.
How is that possible? PG&E and other utilities signed long-term contracts when power was far more expensive. Marin is buying power now that is far cheaper.
The new proposal from the power companies may make things harder for Marin and other CCAs, though. The proposal, filed last week with the California Public Utilities Commission, is the power companies’ bid to fix a system that is widely agreed to be broken.
If the plan is OK’d, existing power companies could argue that government-run competition will be expensive and unnecessary.
If the power companies lose, the customers who stay with them – including some people who will live in places without any choice – could see big rate increases. Soon, half or more of SDG&E’s customers could be in places where there is community choice; but that means the other half may be stuck paying for power bought for everyone who left.
California regulators force power companies to buy power for years into the future. That ensures reliability and stability. But it means that power companies that buy a lot of power when prices are high can get stuck in contracts for expensive power even when prices fall. That’s happened, particularly for wind and solar power, which is far cheaper now than it was several years ago.
Part of the reason is that power companies, at the direction of lawmakers who wanted them to buy renewable energy, helped stimulate the market.
“We helped support an emerging market, we helped the developers, and we should be proud of that,” said Emily Shults, SDG&E’s vice president of energy procurement.
SDG&E’s longest long-term power contract, according to a recent regulatory filing, runs until 2041.
Pretty much everyone agrees utilities need to be reimbursed for power they bought because of state mandates, but there is huge disagreement about how.
Right now, customers who leave PG&E for Marin must pay PG&E for power they aren’t using. They pay a formula-based exit fee to ensure that customers who stick with PG&E aren’t forced to bear the costs of departing customers.
Everyone is unhappy with the current system. Backers of community choice say the fees are already too expensive and may even be designed to hurt community choice. Power companies say the charge isn’t enough to protect customers who stick with SDG&E or who don’t even have the option to switch.
This doesn’t just affect community choice customers: The San Diego County Water Authority thought it found a way to save millions in coming years by buying low-cost power from the federal government, but SDG&E wanted to charge the Water Authority an exit fee and the two utilities came to major impasse last year.
SDG&E, PG&E and Edison want to replace the current exit fee formula with something else. The companies want the power they’ve bought for their customers to follow the customers, even if they try to buy power from someone else. So, if the city of San Diego starts a community choice agency, everyone who leaves SDG&E for the city-run agency brings a portfolio of power with them.
“You’re getting what you paid for, and you’re paying for what you get,” Shults said.
SDG&E says this is only fair. Instead of making customers pay for power they don’t use, customers keep paying and get the power.
SDG&E also portrayed its plan as helpful to community choice. Now, a new utility must start from scratch and quickly buy or generate enough power for all its new customers. But if all the new customers bring with them power bought by SDG&E, the new utility isn’t starting with a blank slate.
But that’s the rub.
The point of community choice is to offer an alternative to the power companies.
“People want a different service provider now, not in 25 years,” said Ty Tosdal, a San Diego attorney who supports community choice.
Community choice can’t offer much real choice if customers are stuck with power bought for them by the old utilities.
The community choice movement wants to hasten the switch to wind and solar power. While SDG&E has the most environmentally friendly energy portfolio of the three big power companies in California, most of its power still comes from conventional sources, like natural gas.
“We don’t want conventional supply in our portfolio, beyond what’s been allowed by our boards,” said Dawn Weisz, CEO of Marin Clean Energy.
The city of San Diego, for instance, is looking to form a CCA to ensure that 100 percent of electricity sold within city limits comes from renewable sources by 2035. While the city would buy power, SDG&E would still own, operate and profit from the use of its delivery lines.
Community choice advocates also say the power companies are not trying hard enough to reduce costs for all their customers right now.
Barbara Hale, president of the California Community Choice Association, said companies should be doing everything they can do to shed high-cost power, something that would not only help ease the concerns that community choice advocates have but also reduce rates for everybody.
“A big part of what they need to do is manage their cost, because all of their ratepayers are paying for these costs – yes, we need to allocate them, but the first order of business is to minimize,” Hale said.
That means SDG&E, PG&E and Edison should work on renegotiating long-term contracts, trying harder to sell off power to others in the market, refusing to sign any contract extensions and curbing the overall purchase of power in anticipation of losing their monopoly.
Christy Ihrig, a spokeswoman for SDG&E, said the company is “open to renegotiating or selling long-term contracts to the extent allowed by law, and we have engaged in this practice when there has been an opportunity for us to do so and our customers have benefited from those negotiations.”
Because SDG&E, PG&E and Edison just submitted their plan to the California Public Utilities Commission last week, the community choice world has yet to weigh in formally about the plan or settle on its own preferred way of dealing with the issue. The power companies, though, are hoping for a final decision by the end of the year.