Leadership of Desert Community Energy at its July 7 meeting approved a 4-percent rate increase for the community choice aggregator’s 100-percent renewable service tier, which went into effect July 15.
The CCA, which currently serves only the city of Palm Springs and has just two board members, elected to make the increase based on a staff recommendation to “assure full recovery of all power supply and operating costs, build financial reserves, address cash flow requirements, and ensure that DCE maintains fiscal health.”
There were a number of factors precipitating the increase, including current energy costs, market volatility, and weather-based energy cost fluctuations.
Specifically, the staff report stated: “Due to market volatility, recent significant increases in energy prices, and DCE’s energy costs, combined with uncertainty about the potential for a summer heat wave, it is anticipated that rates considered in the budget may need to be revised at any point, in order to maintain a sound financial position.” Staff said it and its consultants are closely watching the market and intend to submit any proposed rate changes sufficiently far enough in advance to implement any changes.
“Like most CCAs, DCE procures forward fixed cost contracts to ensure prices remain stable. However, most load serving entities including CCAs experience some market exposure,” Erica Felci, a DCE spokesperson said in an e-mail to California Energy Markets. “With the heatwave in June, concerns about statewide drought and its effects on hydroelectric power, and potential for more extreme weather, DCE is closely monitoring the energy market.”
In the report, staff noted that summer 2021 forward power prices are two to three times greater compared to the previous year. Reduced hydroelectric generation is also exerting upward pressure on prices. Staff said there is also greater uncertainty about what might transpire in markets if there are additional extreme weather events this summer. Wholesale power purchase costs could prove an unanticipated expense for the CCA.
By “procuring fixed price energy on a forward basis over time,” the CCA’s staff said that its energy costs should be lower than the prevailing market price.
“As a relatively new CCA the Board takes a fiscally conservative approach with an eye to building reserves, which help with rate stability,” Felci said. In its first year of operation, DCE has signed four long-term contracts for wind and solar/storage projects, including three in Palm Springs. The contracts will save Palm Springs customers more than $10 million over the life of the contracts, she said.
The staff report also mentions a $6-million hedge position, which Felci said is “consistent with DCE’s status as a relatively small load-serving entity.”
Most CCAs attempt to offer energy at prices at least 1 or 2 percent below those of the incumbent utility; however, some lack the cash reserves and financing to nimbly respond to issues such as customer delinquency and wholesale energy price increases.
These factors and others contributed to Western Community Energy’s demise (see CEM No. 1644 ).
Dina Macklin, a California Public Utilities Commission staffer who briefed the commission on the CCA’s deregistration said the WCE raised its rates multiple times throughout 2021 in order to cover its unpaid liabilities. Among the implications for other CCAs moving forward, Macklin said, is that the situation “underscores the importance of hedges and realistic rate development.”
DCE’s Felci said CCAs and other LSEs “are facing an extremely challenging set of circumstances—market volatility, significant increases in energy prices, customer delinquencies, and uncertainty about the potential for another summer heat wave.” She said the rate increase was solely based on “DCE’s own prudent financial management. The DCE Board has always taken a conservative approach when it comes to managing its finances to make sure it is successful long-term.”
She added that “one of the big benefits to having a locally-controlled utility is that we can quickly respond, if needed, to the changing circumstances, which our Board demonstrated.”
At this same meeting, the board discussed the allocation of costs associated with the CCA since the Cathedral City Council elected to leave DCE, which became effective July 1.
DCE was formed as a joint-powers authority on Oct. 30, 2017, by the cities of Cathedral City, Palm Desert, and Palm Springs. When formed, the expectation was that each city would launch a CCA program; however, only Palm Springs has launched service to date.
The City of Palm Desert remains a DCE member, but has not yet decided when it will launch its CCA service. Felci said possible launch dates are still under discussion with the City of Palm Desert, “but it is ultimately up to the City Council to let us know when that would be preferred. The soonest the City of Palm Desert could launch is 2023.”
As to whether any neighboring areas or jurisdictions could join DCE, Felci said those portions of the Coachella Valley served by Imperial Irrigation District could not join a CCA. Some interest has been expressed in the past by other communities, but none are actively pursuing DCE membership.