The Energy Debate Threatening San Diego’s Promise of Cheaper Energy

Come May, residents in five major San Diego cities will automatically begin buying their energy from a new publicly-run operation with a big promise: that its energy will be cleaner and cheaper than its competitor, San Diego Gas and Electric, an investor-owned utility that’s been the sole provider of power in the region for over a century. 

The promise is already teetering on a thin margin.  

In January, Cody Hooven, San Diego Community Power’s chief operating officer, revealed the fledgling public power company could maintain a one- to two-percent discount over SDG&E, whose energy prices are already the highest in California, and which spiked again this winter.  

But San Diego Community Power leaders say there’s one major cost that, if removed, could provide much lower rates for customers: a charge SDG&E collects to pay for energy it bought for its customers back when it was a monopoly – before San Diego Community Power was a thing. And it pays for energy SDG&E owns, like the Palomar Energy Project, a natural gas power plant in Escondido, or long-term contracts for renewables purchased when the cost of wind and solar was a lot higher than it is now.  

The charge is called the Power Charge Indifference Adjustment, often referred to as an “exit fee” because those who are against paying it feel it’s an unjust cost placed on customers who automatically leave SDG&E for a public power agency.  

SDG&E says it’s mandated by state law and its regulators at the California Public Utilities Commission to collect this fee so the customers that stay with the utility are “unharmed” by the customers leaving for San Diego Community Power.  

“Absent this charge, remaining bundled (SDG&E) customers would have to pay for the additional costs departing load customers left behind,” wrote Helen Gao, a spokeswoman for SDG&E in an email. 

Here’s how the charge works. Imagine SDG&E contracted to buy power from a wind turbine at $100 in 2010. But that turbine’s energy, if purchased today, is only worth $50. SDG&E can charge its customers – including San Diego Community Power customers, who won’t actually be using that wind turbine’s energy anymore – the extra $50 to fulfill that power contract.  

In truth, all customers – be it SDG&E or San Diego Community Power, or the other public power agency in San Diego called Clean Energy Alliance – pay it.  

“The difference is (San Diego Community Power) customers don’t get any benefit from those resources,” said Laura Fernandez, director of regulatory and legislative affairs at San Diego Community Power.  

What she means is, San Diego Community Power wants its customers to only be on the hook for power their company buys.  

Public power agencies have no control over this extra charge, and it accounts for a significant portion of the rate San Diego Community Power customers pay.  

In June of 2021, exit fees were about 31 percent of an average residential customer’s $54 energy bill from San Diego Community Power, according to the company. The rest came from the actual cost of the energy, called generation, and a little from franchise fees, another charge SDG&E passes on to its customers. In February of 2022, the exit fee was about 18 percent of the San Diego Community Power bill. The cost of the charge fluctuates with the price of energy. 

“(Public power agencies) collectively think there should be more exploration in how to reduce those costs for all customers,” said Hooven, chief operating office at San Diego Community Power.  

One simple thing investor-owned utilities like SDG&E could do is renegotiate those energy contracts that are “old and outdated” for a lower price, Hooven said.  

That would lower costs for all customers, not just ours, she said.  

SDG&E said its “currently examining” doing just that.  

“We have solicited contract counterparties to gauge their interest in either contract buyouts, renegotiations and/or assignments,” Gao said.  

The state utility regulator, the California Public Utilities Commission, made a recent change to how the exit fee works to try and appease both parties. It essentially asked private utilities like SDG&E to offer up for sale a portion of their renewable energy contracts. 

Otherwise, as public utilities argued, SDG&E and other monopolies could hold onto that power and drive up the price.  

“That helps because it would reduce the cost of the (exit fee) because we could then take over those contracts if we wanted to,” Hooven said.  

Think of a big timeline. What matters here is the point in time SDG&E purchased power, and the point in time a customer leaves that company for San Diego Community Power.  

Theoretically, the cost burden of the exit fee on San Diego Community Power customers should reduce over time as the sometimes decades-long contracts SDG&E signed to get that energy run out. But investor-owned utilities could choose to extend them or add additional costs like upgrades to a natural gas plant. And once a contract is extended, should public power customers still have to pay for that energy anymore?  

“There’s an ongoing fight over whether the departed customers (those now with San Diego Community Power) are on the hook for (that),” said attorney Tim Lindl, who has represented other public power agencies on this issue.