California Is Raising Costs for Defectors From Power Utilities

(Bloomberg) -- A growing number of California communities are opting to ditch big utilities in favor of alternative programs run by local governments. The state just made it more expensive.

The California Public Utilities Commission voted Thursday to change the formula that determines how much utilities charge customers who switch to these so-called community choice aggregators, or CCAs.

PG&E Corp. and the state’s other big utilities say the revision is needed to protect against rising costs as their customer base shrinks. Advocates for CCAs counter that the decision will sharply increase rates for people who have already switched and may undermine the business case for communities considering forming new ones. The debate shines a light on these increasingly popular programs that threaten the century-old utility business model.

The new fee structure “would shift past and future utility costs upon CCAs in an onerous, destructive manner and hamstring CCA planning,” said Paul Fenn, founder of Local Power Inc., a consulting company that works with community choice programs in California and other states.

Exit Fee

Under state law, departing customers must pay an exit fee to cover the cost of electricity utilities have already committed to buy on their behalf. The companies signed many of the power-purchase deals with renewable-energy providers several years ago, at prices that now seem expensive since the costs of wind and solar energy have been steadily falling. The idea behind revising the power charge indifference adjustment or PCIA, as the fee is called, is to protect utilities’ remaining customers from getting stuck with higher bills as some ratepayers leave.

Under the CCA model, towns band together to buy power from a variety of sources, including wind and solar farms, and set the rates residents pay. Local utilities continue to deliver the energy, and also send customers their monthly bills. There are 19 operating community choice programs in California that serve an estimated 2.5 million customers, according to the California Community Choice Association, an advocacy group.

The commission’s decision deals a “devastating blow to the flourishing CCA movement in California and could deter further market entry by CCAs,” Beth Vaughan, executive director of the community choice association, said in a statement.

The community programs mean the state’s investor-owned utilities operated by PG&E, along with Edison International and Sempra Energy, have already lost a significant number of customers and face more defections.

The costs for utilities’ past investments in clean energy “do not go away when customers depart for a CCA,” Lynsey Paulo, a spokeswoman for PG&E, the state’s biggest utility, said in an email before the vote.

The decision Thursday goes further to “ensure customer choice does not increase costs” to PG&E customers, Paulo said after the decision.

Commissioner Carla Peterman, whose proposal was adopted Thursday, said in an interview before the vote that she tried to strike a balance between the needs of community choice groups and the utilities. The fees make up about 15 percent of the average bill, she said.

Residential customers leaving PG&E would see an estimated increase of 1.68 percent over 2018 bills, according to an estimate provided by the commission. Edison customers would see a 2.5 percent increase while customers leaving Sempra’s San Diego Gas & Electric would get a 5.24 percent rate hike, based on commission estimates.

“This is not about utility profit versus customer choice,” Peterman said. “Nothing changes to the utility’s profit based on our decision here. What changes is which customers are paying for what."

©2018 Bloomberg L.P.