Published : Thursday, April 11, 2019 | 4:40 AM
The maxim “no good deed goes unpunished” could apply to Pasadena consumers facing increased power rates thanks to a mostly successful diversification of energy and simultaneous reductions in use.
“Rates will be increasing,” said City Councilwoman Margaret McAustin. “I’m not sure of the exact date, because it can be challenging coordinating with the City budget, but we’re going to need a rate change.”
McAustin’s comments were made in an interview following an April 9 Municipal Services Committee meeting at which Pasadena Water and Power (PWP) General Manager Gurcharan Bawa spoke on the changing California electricity landscape.
Believe it or not, sales of energy are down, according to Bawa. That is making it hard to finance infrastructure enhancements because there is insufficient “pay as you go” capital.
There are actual instances when peak market prices for energy are lower than off-peak hours.
One of the “culprits,” if that is the apt term, in the drop in energy sales is customers self-generated solar energy, the use of which is now significant enough to impact PWP’s bottom line.
“Solar energy is produced during peak hours when the sun is out, whether the state’s electric system needs the energy or not,” explained PWP spokeswoman Margie Otto.
Supply and demand for energy must be in balance, she explained.
Solar cannot, currently, be stored on a large scale so that when there is a situation of excess supply, and generation cannot be turned off to reduce production, prices drop because there are no buyers.
“This occurs often in the hours when solar energy is being produced,” Otto explained.
And that’s when peak market prices can drop below those charged during off-peak hours.
“So there’s a cost there the City has to recover,” said McAustin, who is Cahir of the Committee. “We will look at modifications that need to be made and make sure the utility is right-sized for the future.”
Another drag on PWP’s bottom line is the state-mandated reserve capacity requirement. The California Public Utilities Commission obligates a “load-serving entity,” such as PWP, to have enough generation capacity to cover 115 percent of its peak needs.
The state-imposed requirement on municipal utilities is “expensive,” according to McAustin.
Said Mayor Terry Tornek: “While everyone applauds the state’s determination to go green and compel utilities to end their reliance on fossil fuel, including natural gas, the result is that costs are going up and the system created is imbalanced.”
The state’s push toward non-fossil fuel and renewable energy sources drove utilities to enter long-term contracts, said Tornek, “and now they have added more power as demand is going down.”
Additionally, a leak at the Southern California Gas Company’s Aliso Canyon storage facility has made management of regional gas supplies “very challenging” in recent years, as peak demand for natural gas, coupled with an unpredictable supply, drives price volatility.
And then there is “load migration,” a term used in reference to customers who are shifting to distributed generation technologies that produce electricity closer to the end-user and have environmental benefits.
The problem for PWP in such instances is that it must maintain infrastructure that connects these innovative consumers to the grid since their updated choices rarely make them completely independent of the utility.
That means the utility must be ready to serve them at any time, even though revenues from these users have decreased markedly.
“These new technologies,” Otto said, “must be accompanied with the appropriate rate structure that rewards consumers for using less, or that charges more for customers who use electricity when it is most expensive to buy or generate.”
The current rate structure is heavily tilted toward “variable” costs, which depend on how much electricity is sold and the manner in which customers buy it.
General Manager Bawa’s presentation called for a restructuring that emphasizes the fixed costs of doing a power utility’s business, defined by Otto as, “those components PWP has to pay no matter how much electricity is sold to customers.”
Among the examples she provided were maintenance crews that work on poles, cables, vaults, switches or the customer call center, meter reading and the payment center.
“So the utility is confronted with the reality that they’re selling less power, but they still have to maintain the same infrastructure,” said Tornek. “I mean, that’s the point of the discussion.”
Some 90 percent of current distribution rates are based on variable costs when the actual cost structure shows a 56 percent to 44 percent fixed-variable split.
“There’s going to have to be a change in the rate structure,” said Tornek, “and it’s going to have to go more to a fixed cost rather than a variable cost so that part of the bill pays for poles and wires and infrastructure in Pasadena
“That will happen within the next year.”