Exit fees plague nascent power utilities

Mountain View leaders last week enthusiastically signaled they would join a new alternative energy utility that promises to bring cleaner, cheaper energy under local control in the South Bay. Mountain View is not alone in being eager to poke holes in a market that has been owned solely by PG&E — but it turns out that unplugging from the big utility still carries a price.

A new political battleground has emerged in recent days over efforts across California to launch what are known as Community-Choice Energy (CCE) programs. These initiatives — expected to number about two dozen in the coming months — pool local households together to buy power on the energy market, giving customers new leverage to find cost savings or promote renewable sources of energy.

Last month, the California Public Utilities Commission approved recommendations by PG&E to roughly double the so-called “exit fees” — monthly charges that must be paid by CCE ratepayers. Some critics accuse the company of trying to raise those fees so high so as to make it imprudent for ratepayers to switch to alternative utilities.

Under industry jargon, the exit fees are officially called the Power Charge Indifference Amount, a term that will appear as a line item on CCE ratepayers’ bills. These fees are meant to offset the liabilities PG&E faces for planning ahead and signing multi-year contracts to purchase power for its millions of customers. When a portion to those customers sever their ties, PG&E is left with losses that need to be recouped. These fees are reconsidered by the CPUC each year, and this time around, utility regulators approved PG&E’s request to recoup $135.7 million in exit fees.

Regions that were early adopters of community-choice energy programs, such as Marin and Sonoma counties, came out against the fee hike, pointing out the increase could have a devastating effect on ratepayers. Marin officials pointed out that the new fees in some cases would represent upward of 25 percent of a residence or small business’ power bill. To remain competitive, they argue they would be forced to buy power at less than 75 percent of PG&E’s costs.

The action leaves a cloud of uncertainty hanging over Santa Clara County as well as about 20 other counties preparing to launch their own independent power utilities in the coming months. The South Bay’s new utility — dubbed Silicon Valley Community Choice Energy — is still in the process of formation, and individual cities are in the process of voting to decide whether to join. The full program is expected to be ready to go live by 2017.

Speaking to the Mountain View City Council last week, Environmental Sustainability Coordinator Steve Attinger warned counties across the state would be closely watching the higher fees. City officials said the new energy utility could hire a lobbying firm to protect their interests in the future.

“This kind of change on the part of the utility does present a significant change in the revenues and financial modeling for the CCEs,” he said, adding that currently, the fees have no expiration date.

If the South Bay’s energy alternative were available today, the average residential customer would see about $11.84 in exit fees on each month’s power bill, said Kirby Dusel, a consultant with Pacific Energy Advisors. While those fees were significant, Dusel pointed out that a community-choice program would still be a cheaper option than PG&E’s regular rates.

“The comparison still looks favorable,” he said. “It’s true that these charges didn’t previously apply, but the (cost of power) generation is so much less that you can layer on these exit fees.”

On the bright side, Dusel said the exit fees should show a trend of slowly decreasing over the coming years as more of PG&E’s contracts begin to expire or be renegotiated.

Many details for a future CCE program still need to be determined, and representatives from all participating cities are set to start meeting in April to make plans. In a technical study published in November, consultants outlined three distinct scenarios for a local energy utility, each showing a general trade-off between cost savings and renewable power sourcing. City representatives will meet in the coming months under a new joint powers authority to decide on the best energy portfolio for the South Bay.

At the Mountain View City Council meeting last week, many in attendance urged the city to put a priority on maximizing renewable energy. Bruce Karney, a leader with the Carbon Free Mountain View group, reminded city leaders that their ambitious goals for reducing carbon emissions depended on a swift push toward renewable power.

The CPUC is planning to schedule a workshop in March to determine more specifics on the exit fees, as well as examine the methodology for how they were calculated. At this point, local officials say they are taking it in good faith that PG&E’s fees are justified.

“We have no reason to believe there’s anything nefarious about this,” said Demetra McBride, sustainability director for Santa Clara County. “It might sound naive, but I think everyone’s strongest interest here is what’s best for the ratepayers.”

By Mark Noack

By Mark Noack

By Mark Noack