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Riverside County community choice energy program becomes first in California to file for bankruptcy 

Created by the California Legislature in the wake of the state’s energy crisis in 2000 and 2001, CCAs are designed to boost the purchase of cleaner energy sources such as wind and solar at rates equal to or lower than investor-owned utilities. The decisions are made by government officials instead of the incumbent utility, such as San Diego Gas & Electric.

Credit:  By Rob Nikolewski | The San Diego Union-Tribune | June 2, 2021 | www.sandiegouniontribune.com ~~

A community choice energy program serving six towns in Riverside County has filed for bankruptcy protection after just one year in business, but officials with two energy programs in the San Diego area that launched recently say they are in no danger of a similar fate.

The board of directors of Western Community Energy, also known as WCE, declared a fiscal emergency May 24 after it said in a staff report that without “an immediate injection of working capital” it will be “unable to pay its bills as they become due.”

Western cited “multiple and ultimately disastrous events in its first year of operation” and filed a petition in federal court for Chapter 9 protection, which allows municipalities to draft plans to reorganize debt and repay creditors.

The staff report listed $27 million due to lenders and Bloomberg News referred to court papers saying Western owed creditors as much as $100 million but had less than $50 million in available assets.

Western is one of 24 community choice aggregation, or CCA, programs across California that offer an alternative to investor-owned utilities when it comes to purchasing power in the communities they serve. Western is the first CCA in the state to file for bankruptcy protection.

WCE officials have promised its 113,000 customers in the cities of Perris, Hemet, Wildomar, Norco, Jurupa Valley and Eastvale they will not see service interrupted.

The Press-Enterprise newspaper in Riverside County last week reported an agency spokeswoman said WCE will likely raise electric rates over the next few years, with customers seeing an average increase of $5 to $10 per month.

WCE officials blamed a host of the reasons for the bankruptcy filing, including a couple related to COVID-19.

First, the number of customers who fell behind on their utility bills “surged five to 10 times higher than industry standards” because of the financial effects of the pandemic. Orders by Gov. Gavin Newsom and the California Public Utilities Commission prohibiting power companies from disconnecting customers for nonpayment resulted, the company said, in about $6 million in losses.

Western sought about $25 million in financing through the federal government’s COVID-19 American Rescue Plan but guidelines tightened and WCE was not able to obtain a bridge loan.

The agency also pointed to the extreme heat wave that hit California last August. WCE officials said they had procured 90 percent of its electric needs for the summer but “the heat storm blew through the anticipated needs” when customers cranked up their air conditioners, leading to an additional $12 million in energy costs.

The bottom line also took another hit, officials at Western said, when the utilities commission bumped up renewable energy requirements. Western launched in April 2020, just after statewide lockdowns went into effect.

“Other CCAs and utilities in California experienced similar events and challenges, however, to weather the storm, they were able to draw on reserves that were built up over years of operation,” the staff report said, while Western “did not have the opportunity to build financial reserves and had no cushion to fall back on.”

Two San Diego CCAs have launched this year:

San Diego Community Power, serving the cities of San Diego, Chula Vista, La Mesa, Encinitas and Imperial Beach, and
Clean Energy Alliance, serving the cities of Carlsbad, Del Mar and Solana Beach.

Barbara Boswell, interim CEO for the Clean Energy Alliance, said her group has installed financial metrics to avoid what happened in Riverside County.

“I want to assure you that Clean Energy Alliance is not in a similar position,” Boswell said during the alliance’s monthly meeting, three days after Western’s announcement. “We have very conservative (fiscal) policies. We have an energy risk management policy that we use to manage our portfolio and our energy procurements … and make sure we have sufficient energy procurements to match our needs.”

Clean Energy Alliance began enrolling customers in May and by the end of this month, will have a customer base of about 58,000. It projects reserves of $3.1 million for fiscal year 2021-22 budget, which slightly exceeds its goal of 5 percent of revenue.

San Diego Community Power, or SDCP, for short, said it is also meeting its 5 percent target, with projections of $17.7 million in reserves in the next fiscal year.

“We have the checks and balances, the goals, the targets, the expertise – all of that to do the best industry practices,” said interim CEO Bill Carnahan. “Many CCAs have been around for more than 10 years and they’re thriving. We’re in that camp.”

After opening in March with 700 municipal accounts, SDCP will add 72,000 commercial and industrial accounts this month. In the first five months of next year, it will enroll about 695,000 residential customers, making SDCP one of the biggest CCAs in the state.

“We wouldn’t be plowing ahead if we weren’t confident in our position, the policies we have in place and the staffing we have,” Chief Operating Officer Cody Hooven said. “We’re comfortable that our rates meet our costs and we’re comfortable where we are for the summer with procurement levels.”

But for skeptics of CCAs such as San Diego businessman Bill Roper, Western’s woes represent flashing yellow caution signs.

“Even in ideal circumstances, without COVID, it’s difficult for CCAs to have a viable financial model,” Roper said. “They have to carry working capital. They have to put up deposits for those agreements. They have to finance themselves … Even SDCP, if they had been open at scale (when the pandemic hit), they would have had a big problem.”

Roper said Western’s financial losses due to a surge in nonpayments in the wake of the pandemic could not have been anticipated but he didn’t have sympathy for WCE blaming some of its problems on last summer’s extreme heat.

“It would not be surprising to see more of the smaller and less mature CCAs have liquidity problems and quite possibly have to file for bankruptcy,” Roper said. “They don’t have capital, they don’t have the reserves and they didn’t adequately foresee price spikes and volume spikes.”

Created by the California Legislature in the wake of the state’s energy crisis in 2000 and 2001, CCAs are designed to boost the purchase of cleaner energy sources such as wind and solar at rates equal to or lower than investor-owned utilities. The decisions are made by government officials instead of the incumbent utility, such as San Diego Gas & Electric.

The establishment of a CCA does not, however, mean traditional utilities go away. SDG&E, for example, will still perform all of the tasks outside of power purchasing, such as transmission and distribution of energy and customer billing.

As per state law, once a municipality forms a CCA, all of its power customers are automatically enrolled. In San Diego, if SDCP and Clean Energy Alliance customers want to opt out and remain with SDG&E, they can do so for free.

Communities that join a CCA typically sign a Joint Powers Agreement, which includes provisions designed to protect the general funds of the respective municipalities if the community energy program fails to meet its financial obligations.

Source:  By Rob Nikolewski | The San Diego Union-Tribune | June 2, 2021 | www.sandiegouniontribune.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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