The Morning Report
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A plan by the state’s three major power companies that would have stifled competition was rejected this week by state utility regulators.
Instead, regulators are considering another plan that could be a major win for cities across California that have started or want to start their own government-run agencies to buy and sell power. The goal of these “community choice” agencies is generally to provide greener and cheaper power. Solana Beach has already started its own power agency and San Diego is among the other cities in the region considering starting one.
Here’s the problem: Existing power companies – San Diego Gas & Electric, Southern California Edison and Pacific Gas & Electric – already built power plants or signed long-term contracts to buy power on the assumption that their existing monopolies would never end.
So, if the city formed an agency and its 1.4 million residents stopped buying power from SDG&E, customers outside of the city could be left holding the bag for that power the company bought but can no longer sell.
For years, companies have been able to charge departing customers an “exit fee” to recoup those costs, but nobody has been able to agree on whether the fee is too high or too low. If it’s too high, few governments would be able to provide cheaper power, destroying the community choice movement. Too low, and customers stuck in places without any choices will be paying too much.
For months, the California Public Utilities Commission has been wrestling with how to recalculate the fees. The three companies submitted a proposal that, if adopted, would have likely made some government power-buying plans unaffordable for customers. For instance, the companies’ plan would have allowed SDG&E to charge community choice customers 5 cents per kilowatt-hour, according to one estimate, which is about twice the current exit fee. That may have been a deal-killer for San Diego’s community choice effort.
This week, a judge for the California Public Utilities Commission rejected that plan and instead cobbled together a ruling that sets a relatively low exit fee and attempts to limit how much that fee can increase in coming years. The judge proposed an exit fee of about 2 cents per kilowatt-hour to begin with and then limiting how much it can increase each year by a half cent.
“Now, there’s zero risk to the city moving forward with community choice,” Nicole Capretz, head of San Diego’s pro-community choice Climate Action Campaign, said in a statement.
But others said the immediate win might be a ticking time bomb.
The three utilities responded with dire predictions on Thursday, a day after the draft ruling was released.
A PG&E official, Fong Wan, called the limits “unworkable” and said they would present “immeasurable risk” to the company, which has already threatened to file bankruptcy because of the liability it faces for recent wildfires in the northern part of the state.
Utility companies weren’t the only ones worried.
“We don’t think it makes sense to start at 2.2 cents,” Matthew Freedman, a staff attorney for The Utility Reform Network, told the CPUC.
Unlike other issues where a loss for utility companies hurts their shareholders, Freedman said the exit fee issue pits ratepayers that can buy power from a new community choice agency against ratepayers who are stuck with an existing power company. No matter what happens, the power companies’ shareholders are protected from immediate losses.
The CPUC judge’s draft decision makes allowances for the fee being too low now by setting up a system for utility companies to pass additional costs on to exiting customers later. But utilities say they are worried about being able to borrow money to cover those gaps right now, particularly given that Wall Street is souring on PG&E after it raised the specter of bankruptcy.
A few others, including the CPUC’s own Office of Ratepayer Advocates, worried that an artificially low exit fee now could, paradoxically, result in later price spikes for community choice customers who are asked to pick up the tab in later years.
Michael Day, an attorney for Commercial Energy of California, said it may even be better to have a high exit fee now than let unpaid fees pile up into the future.
“We would rather take our medicine now than build a large balance and build and extend the liability in the future,” he said.
The exit fee regulatory process is complicated and ongoing and the judge’s decision this week is only a proposal for consideration by the full five-member commission. The CPUC is expected to make a final ruling on the fee in coming weeks or months.
Disclosure: Mitch Mitchell, SDG&E’s vice president for government affairs, sits on Voice of San Diego’s board of directors.