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On April 25, 2017, California’s investor owned utilities, Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison (collectively, the IOUs), filed a joint application (available here) with the California Public Utilities Commission (CPUC) seeking to shift more of their generation costs to the most significant competition the IOUs have ever faced: the new wave of community choice aggregators (CCAs). First recognized in 2002, California allows CCAs to carve out electricity customers from existing IOU service territories under California bill no. AB 117 (available here). Over the course of fifteen years, the CPUC has established policies and methodologies for apportioning a share of the cost of generation and other non-bypassable charges to departing electric customers on a continuing basis for ten years. The CPUC approved the Power Charge Indifference Adjustment (PCIA), which CCA customers are charged to compensate IOUs for above market costs associated with energy procurement originally intended, in part, for the departing customers. AB 117 required this cost-recovery mechanism to not exceed an amount necessary to ensure the IOUs’ remaining customer rates are financially indifferent to CCA development. The legislation also required the cost-recovery mechanism to be applied only up to the expiration of the energy procurement contracts that existed at the time a CCA is formed, not to be applied to any future IOU energy procurement contracts.

The April 25th application to the CPUC seeks to increase the costs IOUs can apportion to their new competitors, the CCAs and their customers as well as other direct access electric service providers. In their filing, the IOUs seek to disturb the balance achieved by the CPUC to impose a permanent obligation for CCAs to pay for ongoing costs of generation and energy procurement. The IOUs’ proposal raises many new issues: from seemingly eliminating the CPUC’s ten-year time limit on cost-recovery charges to CCA customers to a failure to credit CCA customers for benefits received via congestion revenue rights or gas storage rights associated with generation facilities. The IOUs’ portfolio allocation methodology, if approved, threatens the viability of the legislatively mandated CCAs by saddling CCA customers with the costs of both old technology generation as well as renewable resources the IOUs require in their resource portfolio to meet California’s environmental policy goals.  CCAs have no voice in the IOUs’ procurement plans but are being asked to bear the costs, potentially forever. Since the introduction of CCAs in California, the CPUC has carefully weighed the costs and benefits of customers departing from the IOUs’ traditional service (including CCAs, Net Energy Metering customers, and Direct Access energy providers), identifying the net benefits to California’s energy goals, and adhering to the enabling legislation. The IOUs’ proposal, however, raises many questions that affect customer choice and a sustainable energy delivery model for energy service providers in California. Indeed, there are many questions that the CPUC is still currently attempting to answer with regard to the utility of the future, and the changing roles that distributed energy providers and traditional electric service providers will play in the future.

The CPUC established a 30 day comment period on the proposal, which closes May 30, 2017. The CPUC and the California Energy Commission (CEC) are contemporaneously considering the changing nature of consumer and retail choice in California and have scheduled a Joint En Banc, which will include discussion of the evolution of retail electricity choice and the IOU vision for the “Business Model” of the future. For more information on this proceeding, follow the link here.   In addition, a recent CPUC staff white paper (available here) indicates that the CPUC intends to open a rulemaking to examine “the future role(s), structure(s), fiscal and other functions of the three large California electric IOUs.”

For more information on this California proceeding and other CCA matters, please contact Michael Postar, Peter J. Scanlon, Sean M. Neal, Bhaveeta K. Mody, or Andrew B. Art.