California regulators have handed investor-owned utilities a victory in their battle over how much community choice aggregators (CCAs) should pay when they take over utility customers. CCAs say the decision will shoulder them with hundreds of millions of dollars in unfair costs. Utilities say it’s needed to avoid leaving their customers to carry an unfair share of the burden.
On Thursday, the California Public Utilities Commission (CPUC) unanimously approved an alternative proposal, written by Commissioner Carla Peterman, that makes big changes the Power Indifference Adjustment Charge (PCIA). In simple terms, the PCIA is an “exit fee” that CCAs, as well as competitive energy providers under the state’s Direct Access (DA) program, pay utilities when they take over their customers.
The fee is meant to cover utilities’ ongoing costs for legacy investments like power plants, and leave them no better or worse off than they would have been if they hadn’t lost the customers at all. Hence the word “indifference.”
The alternative PCIA decision adopted Thursday has been decried by CCA advocates, who say it goes too far in shifting legacy utility costs onto departing customers’ bills. Specifically, the decision would allow utility-owned power plants built before 2002 to be included in PCIA calculations, as well as remove an existing 10-year cap on the inclusion of post-2002 costs.
CCAs had rallied behind another, earlier CPUC proposal to adjust the PCIA — one that didn’t extend to pre-2002 legacy costs or lift the cap. But CPUC commissioners rejected that proposal by choosing Peterman’s alternative Thursday.
The California Community Choice Association (CalCCA) trade group wrote Thursday that the CPUC’s decision will “result in a sharp increase in PCIA rates for CCA customers” when it goes into effect in January 2019. CalCCA’s 19 members now account for nearly 2.6 million customer accounts, up from about 1.85 million accounts at the end of 2017, which demonstrates the rapid pace of CCA formation in the past few years.
Just how much CCA customers’ bills will rise under the new PCIA regime depends on the utility, the type of customer, their energy usage and other factors, according to a Thursday press release from the CPUC. Looking at a typical residential customer leaving a utility for a CCA this year, the CPUC estimated the change will lead to a bill increase of 1.68 percent in PG&E’s territory, 2.5 percent in Southern California Edison territory, and 5.24 percent in San Diego Gas & Electric Territory.
But CalCCA and other CCA advocates point out that these single-digit increases will add up to hundreds of millions of dollars in additional costs. These new costs “could deter further market entry by CCAs,” given that they rely on being able to offer rates lower than utilities’ rates to bring in new customers.
For example, most of the state’s CCAs so far are in the territory of utility Pacific Gas & Electric, where six CCAs now have about 2.1 million customer accounts, out of PG&E’s 5.4 million electricity customer accounts.
According to Nic Chaset, CEO of Alameda County’s East Bay Community Energy, a PG&E analysis found the alternative decision approved Thursday would result in a greater than 18 percent increase in the PCIA rate, shifting more than $300 million onto the CCAs in its territory. San Francisco CCA CleanPowerSF estimated it would pay an additional $40 million, or about 25 percent of its annual revenues, under the new PCIA regime.
CPUC Commissioner Peterman defended her PCIA decision in Thursday’s press release, saying that it “ensures a more level playing field” between CCA and DA customers and the “bundled” customers that remain with their utility.
“We are updating the PCIA formula now because everyone agrees it is broken,” she wrote. “I support the creation of alternative electric providers to expand customer choice, and our legal obligation is to make sure this happens without increased costs to customers who do not, or cannot, join a CCA.”
Equitable Energy Choice for Californians, a group of consumer and business advocates supporting utilities in the PCIA debate, also lauded Thursday’s decision. “The continued growth of CCAs can’t be dependent upon sheltering their customers from the reality of costs by shifting those cost burdens to power customers of IOUs,” Juan Novello, senior vice president of the California Hispanic Chambers of Commerce, said on the group’s behalf. “This is not only unfair, but unsustainable.”
This is not the final decision on the PCIA coming from the CPUC. The Advanced Energy Economy (AEE) business group, which has several big corporate members participating in California’s DA market, noted in a Thursday statement that the CPUC will next be scoping activity for “Phase 2” of this proceeding track. This will focus on “determining more durable market-based solutions to PCIA reform, including the big question of portfolio optimization and allocation,” AEE wrote.
Beth Vaughan, CalCCA’s executive director, wrote in a Thursday statement that the group would continue to pursue “a new PCIA that lowers costs for all consumers and fosters a competitive environment that offers communities more energy options. We will consider all avenues going forward.”
This Phase 2 work could also include the contentious issue of how CCAs contract for resource adequacy (RA) — gas-fired power plants or other capacity resources that are contracted to ensure grid reliability during times of peak demand. Under current CPUC regulations, CCAs have covered the cost of their host utilities procuring resource adequacy through the PCIA charge.
But CCA advocates say they’re overpaying for this capacity, because the current calculation only includes the minority of RA that’s procured under short-term contracts. CCAs are pushing for a methodology that allows for the RA value of their long-term contracts to be calculated as well.