Tag Archives: PG&E electricity rates

PG&E apologizes, yet again

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(Image: ABC 7 News)

I listened to PG&E’s CEO Bill Johnson and his staff apologize for its mishandling of the public safety power shutoffs (PSPS) that affected over 700,000 “customers” (what other industry calls meters “customers”?) yesterday. And as I listened, I thought of the many times that PG&E has fumbled (or even acted maliciously) over the years. Here’s my partial list (and I’m leaving out the faux pas that I’ve experienced in regulatory proceedings):

  • Failing to turn off power locally in 2017 and 2018 under hazardous weather conditions, which led to the Wine Country and Camp fires.
  • Failing to install distribution shut off equipment that was installed by San Diego Gas & Electric and Southern California Edison after the 2007 wildfires in Southern  California.
  • Signing too many power purchase agreements with renewables in the 2009 to 2014 period that were for too long of terms (e.g., 20 years instead of 10 years). PG&E is unable to take advantage of the dramatic cost decreases created by California’s bold investments. For a comparison, PG&E’s renewable portfolio costs about 20% more than SCE’s. (I am one of a few that has access to the confidential portfolio data for both utilities.)
  • Failing to act on the opportunity to sell part of its overstuffed renewable portfolio to the CCAs that emerged from 2010 to 2016. Those sales could have benefited everyone by decreasing PG&E’s obligations and providing the CCAs with existing firm resources. That opportunity has now largely passed.
  • The gas pipeline explosion in San Bruno in 2010 caused by PG&E’s failure to keep proper records for decades. PG&E was convicted of a felony for its negligence.
  • Overinvesting in obsolete distribution infrastructure after 2009 by failing to recognize that electricity demand had flattened and that customers were switching en masse to solar rooftops. (I repeatedly filed testimony starting in 2010 pointing out this error.)
  • Deploying an Advanced Meter Infrastructure (AMI) system starting in 2004 using SmartMeters that claimed that it would provide much more control of PG&E’s distribution system, and deliver positive benefits to ratepayers. Savings have largely failed to materialize, and PG&E’s inability to use its AMI to more narrowly target its PSPS illustrates how AMI has failed to deliver.
  • Acquiring and building three unneeded natural gas plants starting in 2006. Several merchant-owned plants constructed in the early 2000s are already on the verge of retiring because of the flattening in demand.
  • Failing to act in May 2000 to end the “competitive transition” period of California’s restructuring by agreeing to the market valuation of its hydropower system.
  • If PG&E had ended the transition period, it would have been immediately free to sign longer term contracts with merchant generators, thereby taking away the incentive for those generators to manipulate the market. The subsequent energy crisis most likely would have not occurred, or been much more isolated to Southern California.
  • PG&E’s CEO in 1998 made a speech to the shareholders stating that it was PG&E’s intent to extend the transition period as far as possible, to March 2001 at least. (We cited this speech from a transcript in the 1999 GRC case.)
  • Offering rebuttal in the 1999 GRC that instead confirmed the ORA’s analysis that the optimal size of a utility is closer to 500,000 customers rather than 4 million plus. Commissioner Bilas wrote a draft decision confirming this finding, but restructuring derailed the vote on the case.
  • Being caught by the CPUC in diverting $495 million from maintenance spending to shareholders from 1992 to 1997. PG&E was fined $29 million.
  • Forcing the CPUC in 1996 to adopt the “competitive transition charge” which was tied to the fluctuating CAISO day-ahead market price instead of using Commissioner Knight’s up front pay out for stranded assets. The CTC led to the “transition period” which facilitated the ability of merchant generators to manipulate the market price.
  • Two settlement agreements allow PG&E to fully recover its costs in Diablo Canyon by January 1, 1998 based on its authorized rate of return from 1986 to 1998, but also allows it to put into ratebase about half of its “remaining” construction costs as a prelude to restructuring.
  • Getting caught in 1990 telling FERC that PG&E was short resources and needed to build more, while telling the CPUC that it had a long term surplus and that it needed to curtail its payments to third-party qualifying facilities (QF) generators.
  • In the early 1980s, failing to set up a rationale process for signing QF contracts that limited the addition of these resources. In addition, PG&E missed an important pricing calculation mistake in the capacity payment term that led to a double payment to QFs.
  • In the 1970s, making many construction management mistakes when building the Diablo Canyon nuclear power plant, including reversing the blueprints, that led to the costs rising from $315 million to over $5 billion. (And Diablo Canyon in 3 of the last 5 years has operated at a loss and should not have been generating for several months each of those years.)
  • In the 1960s, signing an agreement with Sacramento Municipal Utility District (SMUD) to finance the construction of the Rancho Seco nuclear plant that essentially gave SMUD free energy when Rancho Seco wasn’t generating. The result was the mismanagement of the plant, which was so damaged that it was closed in 1989 (in part as a result of analysis conducted by the consulting team that I was on.)

The other two California IOUs are guilty of some of these same errors, and SMUD and Los Angeles Department of Water and Power (LADWP) also do not have a clean bill of health, but the quantities and magnitudes to don’t match those of PG&E.

Why the CPUC has it wrong on the PCIA

Nick Chaset is the CEO of East Bay Community Energy which is a community choice aggregator (CCA) that serves Alameda County. He also was Commission President Michael Picker’s chief advisor until last year when he left for EBCE. He explains in this article how two proposed decisions that the CPUC is considering are fundamentally wrong and will shift cost onto CCA customers. (I testified on behalf of CalCCA in this proceeding. I’ll have more on this before the Commission’s scheduled vote October 11.)

Figure 1 – CPUC’s Proposed Resource Adequacy Value vs. True Market Values

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Figure 2 – GHG Premium Value Missing from CPUC Proposed Decision

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Figure 3 – Falling Utility Rates as Customers Depart Filed in Their ERRA Rate Applications

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Dunning gets it wrong again on VCE

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Valley Clean Energy Alliance (VCE) was in the Davis opinion columns this weekend again. First, Bob Dunning wrote another column in the Davis Enterprise that mischaracterizes the switch to VCE from PG&E as “mandated” and implies that local government didn’t trust Davis citizens to make the right choice. Then, David Greenwald wrote a column in the Davis Vanguard on how Dunning had ignored the authorization of the development and formation of VCE and is late to the game.

In both cases, the distinction between the choice to form VCE made by city councils and the Board of Supervisors after substantial study  is not distinguished from the choice that electricity ratepayers now have as to which entity will serve them. Previously, Yolo County ratepapers had no choice as to who should serve them–it took the formation of VCE to create that choice. If Dunning has a problem with that even offering that choice in the first place, then that’s a much more fundamental problem. But he is not being so transparent in his opposition, with is either disingenuous or ignorant.

I wrote the following email to Bob Dunning (I had an earlier letter to the editor already published in the Enterprise, that I also posted on this blog and the Davis Vanguard.)

You complain that somehow you’ve been “mandated” to sign up with Valley Clean Energy Authority. Yet you fail to ask the question “why was I mandated to sign up with PG&E all of those years?” Why does PG&E get a free pass from your scrutiny?

Instead now, you actually have a choice. We trust that you will make the right choice, whereas before you had NO choice. And you are not “mandated” to join VCE. You can act to switch to PG&E if you so choose. What has changed is the starting point of your choice. The default is no longer PG&E—it’s VCE. There’s nothing wrong with changing the default choice, but we have to start with a default since everyone wants to continue to receive electricity. (The other option is like they did with long distance service in the late 1980s with random assignment as the starting point, but that seems too much bother.)

 Send me your answers in your next column.

As to the Vanguard, I posted:

I think your column misses the fundamental point–contrary to everything that Dunning writes, we DO have a choice–it’s just that the starting point (default) isn’t what he wants. He prefers that the big corporations get the favored pole position.

 

Reaction to Is “Community Choice” Electric Supply a Solution or a Problem?

Severin Borenstein at the Energy Institute @ Haas wrote a good summary of the issues around community choice aggregation.

Source: Is “Community Choice” Electric Supply a Solution or a Problem?

I am on the City of Davis’ Community Choice Energy Advisory Committee and have been looking at these issues closely for a year. I had my own reactions to this post:

First, in California the existing and proposed CCEs (there are probably a dozen in process at the moment to add to the 3 existing ones) universally offer a higher “green” % product than the incumbent IOU, most often a 50% RPS product. And although MCE and SCP started out relying on RECs of various types to start out, they all are phasing out most of those by 2017. I think most will offer a 100% product as well.

The reason that these CCE’s are able to offer lower rates than the IOUs at a lower RPS is that the IOUs prematurely contracted long for renewables in anticipation of the 2020 goal. In fact, the penalty for failing to meet the RPS in any given year is so low, that the prudent strategy by an IOU would have been to risk being short in each year and contract for the year ahead instead of locking in too many 20+ year PPAs. At least one reason why this happened is that the IOUs require confidentiality by any reviewers and no connections to any competing procurement decisions. As a result the outside reviewers couldn’t be up to speed on the rapidly falling PPA prices. The CPUC has made a huge mistake on this point (and the CEC has rightfully harassed the CPUC over this policy.)

CCE’s also offer the ability to craft a broader range of rate offerings to customers–even flat 20 year rates that can compete with solar roofs on the main issue that customers really care about: price guarantees. In addition, CCE’s are more likely to be to nimbly adjust a rapidly changing utility landscape. CCE’s are much less likely to care about falling loads because their earnings aren’t dependent on continued service.

It’s also to recognize the difference between local government general services (e.g., safety and public protection, social services, regulation, etc.) and enterprise services (e.g., utilities of all sorts). In general, the latter are as efficient as IOUs (except LADWP which illustrates the INefficiency created by overlarge organizations). So one can’t make a broad generalization about local government problems and how they might apply in this situation. The fact is that almost all of the existing and new CCEs are or will be JPAs, which are often even leaner. (Lancaster is the exception.)

Finally, Severin made this statement:

“Whatever regulatory mandates, managerial mistakes, or incompetence occurred in the past, customers switching to a CCA should not be allowed to shift their share of costs from past decisions onto other ratepayers.”

I have to disagree to a certain exent with this statement. Am I forced to pay for the past incompetencies of GM or GE or any other corporation? Yes, utilities have a higher assurance of return on their investments, but no where is it written that it is “ironclad.” Those utilities had an assurance first as the sole legal provider and then as the provider of last resort, but that’s eroding. In California, the CTC was a political deal to get the IOUs out of the way. The fact is in California that the CPUC abrogated its responsibility to oversee these decisions on behalf of ratepayers with the encouragement of the IOUs. If the IOUs want to retain their customers, then they should be forced to compete with the CCEs (and DA LSEs.) It’s time to reopen this matter.

And to add a bit more:

The logic of this statement is that ANY customer who leaves the system, including moving to another area, state or nation, should have to continue to pay these stranded costs. Why should we draw the line arbitrarily at whether they happen to still get distribution services even though the generation services have been completely severed? Particularly if someone moves from say, San Francisco to Palo Alto, that customer still relies on PG&E’s transmission system and its hydro system for ancillary services. Why not charge that Palo Alto customer a non-by-passable charge? And why shouldn’t it be reciprocal? Relying on “political practicality” is not an answer. Either ALL customers are tethered forever, or no customers are required to meet this obligation.

 

Equity issues in TOU rate design

I attended the Center for Research into Regulated Industries (CRRI) Western Conference last week, which includes many of the economists working on various energy regulatory issues in California. A persistent theme was the interrelationship of time-varying rates (TVR) and development of distributed generation like rooftop solar. One session was even entitled “optimal rates.” We presented a paper on developing the proper perspectives and criteria in valuing distributed solar resources in another session. (More on that in another post.)

With the pending CPUC decision in the residential ratemaking rulemaking, due July 3, time of use rates (TOU) rates were at the top of everyone’s mind. (With PG&E violations of the ex parte rules, the utilities were cautious about who they were presenting with at least one Commission advisor attending. At least one presentation was scotched for that reason.) Various results were presented, and the need for different design elements urged on efficiency grounds. In the end though I was struck most by two equity issues that seem to have been overlooked.

First, various studies have shown that TOU rates deliver larger savings for customers who have various types of automated response equipment such as smart thermostats (e.g., NEST) or smart appliances. Those customers will see bigger bill savings and may find that doing so is more convenient and comfortable. An underlying premise in these studies is that the customer is the decision maker. But for 45% of California’s residents–renters–that is not the case. As a result tenants, who tend to have lower incomes, are likely to be subsidizing home owners who are better equipped to benefit from TOU rates.

Tenants must rely on landlords to make those necessary investments. Landlords don’t pay the bills or realize the direct savings in what is called the “split incentive” problem. And landlords may be concerned that future tenants might not like the commitments that come with the new smart devices. For example, signing up for PG&E’s SmartAC program can face this barrier.

So in considering residential customer impacts, the CPUC should address the likely differential in opportunities and benefits between owner-customers and tenant-customers. Solutions might include rate design differences, or moving toward a model where energy service providers (ESP or ESCo) take over appliance ownership in multifamily buildings. This split incentive is endemic across many programs such as the solar initiative and energy efficiency.

Second, a fixed charge have been proposed to address the anticipated impact of solar net energy metering. The majority of costs to be covered are for the “customer services” that run from the flnal line transformer to the meter. (I’ve been focused on this segment while representing the Western Manufactured Housing Communities Association (WMA) on master-metering issues.) However, the investments in customer services are not uniform across residences. For older homes, the services or “line extensions” may have already been paid off (e.g., most homes built before 1975), and with inflation, the costs for newer homes can be substantially higher.

The fixed charge would be based on one of two methods. In current rate cases, the new or “marginal” cost for a line extension is the starting point of the calculation, and usually the cost is scaled up from that. However, given the depreciation and inflation, the utilities will receive much more revenue than what they are entitled to under regulated returns. In the second method, the average cost for all services will be applied to all customers. This solves the problem of excess revenues for the utility, but it does not address the subsidies that flow from customers in older homes to those in newer ones. Because the residents of older homes tend to be tenants and have lower incomes, this again is a regressive distribution of costs. Solutions might include no fixed charge at all, differences in rates by house vintage, or discounts in the fixed charge as SMUD has instituted.

Regardless, these types of subsidies flow the wrong direction.

Davis to look at Community Choice Energy

After calling a halt to the deeper exploration of an electric publicly-owned utility, the city has turned to an easier mountain to climb in community choice energy aggregation (now remonikered to CCE). The original POU study briefly looked at the CCE option and moved past (and in my opinion used too generic of an approach to assess the POU path with some incorrect assumptions and didn’t consider the rapidly changing electricity market). Several direct access providers have approached the city and interested parties about helping implement a CCE. The citizen’s committee will look at whether a CCE opens up new value for the city and its citizens, and whether to go it alone or to join another CCE. Marin Clear Energy and Sonoma Clean Power both have participation rates over 90%. I will be sitting on that committee as an appointee via the Coalition for Local Power. (I also sit on the Utilities Rates Advisory Committee which has an appointee.)

Perhaps one of the most attractive features is that Davis can gain control of the energy efficiency funds available from the public good charge by preparing a plan specific to the city. Fortunately, the framework for that plan is already underway with a prompt from the Georgetown University Energy Prize.

PG&E to release 65,000 emails since 2010

PG&E in the wake of more revelations about ex parte contacts with CPUC commissioners and staff is releasing 65,000 emails over the period from 2010.  This should make for some interesting reading by interested parties. Is there anyone out their who might like to cooperatively compile a readable database?