Reforms to Exit Fees for Departing Load Customers May Be On the California Horizon

The California Public Utilities Commission (CPUC) signaled this month that the topic of exit fee reform for departing load customers may be back on the Commission’s agenda.  A significant public outcry arose late last year when Pacific Gas and Electric Company (PG&E) aimed to significantly increase its exit fees to such a level that much of the savings that Community Choice Aggregators (CCAs) had previously projected for their customers relative to continuing to take service from the utilities that these customers had departed from, would be entirely eliminated.  However, there was no clear venue for the CPUC to take up this topic.  

On March 8, the CPUC held an all-day workshop on the Power Charge Indifference Adjustment (PCIA) Inputs and Methodologies as part of PG&E’s 2014 Energy Resource Recovery Account (ERRA) proceeding.  The workshop likely heralds a new focus on exit fees by the CPUC.

Why the Workshop Was Held

ERRA proceedings are used to determine a utility’s fuel and purchased power costs that can be recovered in rates.   Utilities do not earn a rate of return on ERRA costs, and only recover their actual costs.  The costs are forecasted by the utilities for the year ahead, rates are set to recover those costs, and then the rates are trued-up on an annual basis if there is an over- or under-collection. Exit fees, and the PCIA in particular, are intended to make a utility (and its bundled customers) whole for the amount of “above market’ power that the utility purchased on behalf of the customers that have “departed” to become CCA or Direct Access (DA) customers.  This is supposedly to ensure “bundled customer indifference” – a policy goal that is achieved by ensuring customers that remain are not worse off because of the CCA and DA customer departures.

A utility’s annual forecast of its exit fees, including its calculation of the PCIA for the upcoming year, are a part of the utility’s annual ERRA application since these fees are considered to be directly related to the utility’s purchased power costs.

In PG&E’s 2014 ERRA application, the esoteric issue of assigning a departure date in order to determine those departing customers’ new generation resource obligations (a component of the PCIA) arose.  This then led to the need for a venue to explore the technical underpinnings of the PCIA and how it is calculated – the March 8 workshop was born.

Proposals for Exit Fee Reform

Interestingly, the workshop morphed into a comprehensive exploration of possible proposals to remake the PCIA entirely.  Both DA parties and CCA parties provided their recommendations to a packed auditorium at the CPUC.

DA Parties proposed to (i) allow customers to pre-pay future PCIA obligations; (ii) set a limit on the number of years a DA customer must pay the PCIA; and (iii) establish no new vintages for PCIA for DA customers. These proposals were based on a desire to allow DA customers to better predict and manage their expenses, eliminate the PCIA for many of these customers as an on-going obligation, and remove the disconnect of having customers paying for costs associated with service from the utilities that stopped a long time ago.

The CCA parties proposed to increase the transparency of the PCIA (currently much of the calculation is done in a black box due to utility’s competitive concerns and concerns regarding market manipulation), ensure accountability that the investor-owned utilities were excluding avoidable costs from being included in the PCIA calculation, and to ensure a menu of possible buy-out options to remove the ongoing nature of the PCIA for departing load customers.

Mixed Reaction by CPUC Decisionmakers, but the Start of a March Towards a “Menu of Options” for Departing Load Customers

While Commissioner Florio seemed lukewarm to many of these proposals during the workshop, Energy Division staff and Commissioner Florio’s own staff appeared more amenable to evaluating and considering many of the proposals made by the DA and CCA parties that attended and actively participated in the workshop.  And Commissioner Florio himself described the workshop as a “launching point” that would continue the conversation on the PCIA specifically and exit fees in general.

Most importantly, there was a great deal of discussion, and even muted excitement, at the idea of giving departing load customers a “menu of options” to rid themselves of the ongoing nature of the PCIA.  It was clear that this major reform alone would bring welcome relief to departing load customers.