PAM Joint IOU Application
Retail electricity service in California involves two parts: the buying and selling of electricity (or power procurement) for retail customers, and the delivery of that power to customers. The vast majority of electricity customers in California continue to rely on their utility for both the purchase and delivery of their power.
Customers that receive both services from their investor-owned utility are called “bundled service” customers. Under certain circumstances, customers can receive their power procurement from other authorized service providers. One of these options is Community Choice Aggregation (CCA). Customers that participate in these options are called “departing load” customers.
In 2002, the California Legislature enacted Assembly Bill 117 to establish CCAs, which offer cities, counties or other authorized California public agencies the ability to buy and sell electricity on behalf of utility customers within their jurisdictions, as long as no costs are shifted to the remaining bundled service customers who continue to purchase their power from the utility. This prohibition on cost shifting is an important consideration of the customer choice authorized by AB 117.
To implement AB 117, the California Public Utilities Commission adopted a method intended to maintain bundled service customer “indifference” to departing load — that is, the bundled service customer is not supposed to end up paying more due to departing load customers.
Interest in CCAs has been increasing in the last five years and a few are now operating throughout the state. And there are a large number of communities considering CCA formation. SCE supports customers’ right to purchase power from a CCA as long as there are no costs shifted to customers who continue to purchase their power from the utility.
With growing interest in CCAs, and a recognition that remaining bundled service customers are not presently fully protected (i.e., not “indifferent”) from incurring increased costs due to departing load under the current CPUC method, the three investor-owned utilities in California (SCE, PG&E and SDG&E) have filed an alternative proposal with the CPUC to establish a more effective method for maintaining customer indifference.
Caroline Choi, Southern California Edison senior vice president for Regulatory Affairs, discusses CCA developments and the recent joint utility proposal to modernize the way the utilities’ power portfolio costs and benefits are allocated among customers.
Q: The state has seen a great deal of interest in CCAs and now has more than a handful operating in various parts of the state. What is a CCA and how does it work?
A: CCAs enter the buying and selling side of the electricity business for retail customers in their community while existing investor-owned utilities continue to own and operate the transmission and distribution grid infrastructure and transport and deliver the power to customers. Utilities also continue to provide customer services, such as metering and billing, for CCA customers, and offer public purpose programs, such as energy-efficiency and low-income programs, to customers served by CCAs.
Once a city, county or public agency forms a CCA and becomes operational, that CCA will be the default provider of power for the retail electricity customers in that CCA’s jurisdiction. Customers can continue to receive service from the investor-owned utility, but must affirmatively opt out of the CCA program to do so. Failure of any customer to opt out means they will receive their power from the CCA entity.
Customers of a CCA continue to have an SCE meter and receive a bill from SCE, and the power charge from the CCA will be on that same SCE bill. The SCE bill will be separated into energy charges from the CCA for the energy a customer uses, and for the distribution, transmission and customer services they receive from SCE.
Q: If the CCAs are now providing a service that utilities used to provide, are the two of you in competition?
A: No. SCE supports our customers’ right to purchase power from a CCA as long as there are no costs shifted to customers who continue to purchase their power from the utility. CCAs and investor-owned utilities, such as SCE, are not in competition for customers. When CCAs enter the market, they enter the buying and selling side of the business, creating a system somewhat like Texas, where customers have a choice in who sells them electricity.
The formation or growth of CCAs does not impact the number of customers SCE serves. When a CCA forms or expands, SCE continues to provide transmission and distribution service (poles, wires, transformers) and other services, such as public purpose programs, and reliability procurement for all the customers in its service area, including all CCA customers.
Q: Will the growth of CCAs hurt your business and profits?
A: SCE purchases most of the power we provide to our customers without any mark-up, so CCAs should have no impact on our business or profits. This does not mean, however, that a bundled customer (not in a local government territory that becomes a CCA) is not impacted. It is critical for customers that the provisions outlined in AB 117 intended to prevent cost shifting are followed to ensure that customers who remain with the utility, including those who may be low-income, do not subsidize the costs of those who take service from a CCA or other provider.
By law, SCE doesn’t make money for procuring energy on behalf of its customers. SCE is permitted to earn a regulated profit for the delivery portion of its business.
SCE strives to safely provide reliable and affordable service to all of its customers throughout Southern California, including those participating in a CCA.
Q: The state’s investor-owned utilities have submitted a joint application to the CPUC regarding the costs that are recoverable from customers when they depart the utility’s procurement service for other providers. What is the issue and how does this work?
A: The laws that authorize CCAs and other customer choice programs require that costs are not shifted to remaining bundled service customers when customers depart the utility’s procurement service for other options. The CPUC adopted a methodology intended to keep bundled service customers “indifferent” to departing load customers, and it involves departing load customers (like CCA customers) paying a Power Charge Indifference Adjustment (PCIA) and/or a Competitive Transition Charge (CTC) in their rates. These charges were intended to ensure that departing load customers continue to pay their equitable share of costs of the utility’s power procurement and utility resources that were procured on their behalf before their departure.
However, we now know that the methodology adopted by the CPUC for allocating these costs among bundled service and departing load customers is failing to keep customers indifferent, and needs to be changed. The current approach forecasts costs based on administratively determined estimates of hypothetical future market prices, with no true-up for actual costs. There is also no periodic review to ensure the system is keeping remaining bundled service customers indifferent to departing load after the date they no longer take power service from SCE.
Because this complex process is not a “static” one that is simply set once based on actual current market prices, but rather requires periodic adjustment as the cost of power in the market changes, the present process does not achieve indifference as required by state law. On April 25, SCE, PG&E and SDG&E filed a joint application with the CPUC that proposed a new, more accurate, equitable and transparent way to allocate the costs and benefits of the utilities’ power procurement portfolios among customers. It is called the Portfolio Allocation Methodology (PAM).
Q: What are the existing generation costs that are allocated and will making the utilities’ proposed change harm CCAs?
A: Much of the costs of the utilities’ power procurement portfolios consist of the long-term renewable energy contracts that have supported California’s clean energy goals and have met specific percentage targets for renewable energy. Those long-term agreements, signed by the utilities and in many cases directed by the state’s policymakers, helped make clean and renewable energy plentiful and more affordable, as well as helping meet California’s ambitious climate action goals.
The proposed PAM is a superior way of ensuring indifference among customers because it recovers actual costs and allocates actual benefits to all customers on whose behalf the power resources were procured, which ensures customers pay for what they receive and benefit from what they pay for. It meets the requirements of California law to treat all customers equally, and not leave one set of customers holding more of the bill for the utility’s power supply portfolio obtained to serve all customers.
The PAM proposal does not impinge on the right of local governments or agencies to investigate or form CCAs; it simply addresses the broken indifference methodology to ensure equity for all customers and the long-term sustainability of customer choice and California’s clean energy and climate action goals. The PAM proposal would eliminate the shift of power procurement costs from departing load customers to remaining bundled service customers by allocating the benefits and actual net costs of the utility’s power procurement portfolio to all customers consistent with the intent of AB 117 to avoid such a cost shift.
Q: What could be the impact on customers if costs are not shared equitably and accurately?
A: Much of the clean renewable power we have today is because of choices California made over the past 15 years to require the utilities to enter into long-term renewable contracts to serve their bundled service customers. Those long-term renewable contracts have been the backbone of creating a competitive renewable energy supply industry in California and beyond which has driven down costs for renewable energy consistently in recent years.
SCE supports our customers’ right to purchase power from a CCA. But no customer should pay more than their share for the clean energy choices made to meet state policy, while others pay less.
The PAM proposal addresses this problem by asking the CPUC to approve a new methodology to treat all customers equitably and helps ensure our common goals for an affordable, safe, reliable and clean energy future.