Rancho Mirage is now a power company, and the rest of California might follow its lead

Rancho Mirage is saying goodbye to Southern California Edison.

Starting in a few months, local officials will decide where to buy energy for the city's 18,000 residents — a change they say will lower electricity bills by 5 percent, and allow environmentally minded residents to buy cleaner energy than they'd get from Edison.

Rancho Mirage's decision to launch a "community choice" energy program, which was approved by the City Council on Thursday, reflects a dramatic, ongoing shift in how Californians get electricity. Cities and counties across the state are looking to reduce electricity bills, boost clean energy and gain independence from traditional utilities by launching community choice programs, which allow local leaders to make electricity-buying decisions themselves. Investor-owned utilities like Edison, Pacific Gas & Electric and San Diego Gas & Electric are required to transmit the electricity over their wires and send out bills, but local officials decide where to buy energy and how much to charge.

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There are already nine community choice programs operating in the state, serving nearly 2 million homes and businesses, according to the California Community Choice Association, an advocacy group. Half a dozen programs could launch in 2018, including a multi-city effort in Los Angeles County. Other local governments are studying community choice, including the Coachella Valley Association of Governments, the Western Riverside Council of Governments and Riverside and San Diego counties.

Rancho Mirage's community choice program was approved by the California Public Utilities Commission this week and is set to launch May 1.

"From a ratepayer's standpoint, this is a very easy program, because essentially the message is this: We're starting a program that is going to save you 5 percent on your electricity. And you don't have to do anything to get that 5 percent," Isaiah Hagerman, Rancho Mirage's director of administrative services, said in an interview. "You have the ability to opt out, and you can stay with Southern California Edison for higher rates."

If millions of Californians switch to locally run energy programs over the next decade, that could undermine the investor-owned utilities' business model — a possibility that has the utilities worried. Edison, PG&E and SDG&E have asked the Public Utilities Commission to raise the "exit fees" that community choice customers are required to pay their former utilities, to cover the costs of long-term contracts the utilities have signed to provide electricity for those communities. A decision is expected by July.

In a filing to the utilities commission last year, the three investor-owned utilities said the formula for calculating the exit fee is "broken and must be fundamentally reformed to prevent cost increases to (remaining) customers." But community choice advocates disagree, and say higher exit fees could make it financially infeasible to break off from the utilities. Riverside County's decision on whether to move forward with a program for unincorporated areas will be determined in large part by the utilities commission's decision on exit fees, according to Brian Nestande, the county's deputy executive officer.

READ MORE: Riverside County community choice program takes shape

In the meantime, the utilities commission is considering a resolution that critics say amounts to a one-year freeze on new community choice programs that didn't submit implementation plans by Dec. 8, 2017 — and a two-year freeze on programs that didn't submit plans by Dec. 31. That could create headaches for the Coachella Valley Association of Governments and Riverside County, both of which submitted plans between those two dates and wouldn't be able to launch their programs until 2019.

The proposal doesn't affect Rancho Mirage, which submitted its plan in October.

Commission staff say the pause may be needed to ensure that utilities don't inadvertently get stuck paying for certain types of energy to serve new community choice programs as they get started. But community choice advocates say that concern is overblown. They see the proposed freeze as a thinly veiled attempt by the commission to slow down a movement that threatens the investor-owned utilities.

Paul Fenn — who helped create the concept of community choice nearly 25 years ago in Massachusetts, and who now runs the California-based consulting group Local Power — said a two-year moratorium is "effectively a brick wall" for community choice. Over two years, he said, new politicians get elected and studies fall out of date.

"It's stopping a process that does not easily recover and start up again," Fenn said.

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Coachella Valley officials are also urging the utilities commission to reject the proposed freeze at its Feb. 8 meeting. The community choice program being developed by the Coachella Valley Association of Governments — which is known as Desert Community Energy and includes Palm Springs, Cathedral City and Palm Desert — told the commission it finished its implementation plan on Dec. 4, but didn't submit it right away because Edison asked for a few days to review it first. Desert Community Energy leaders said they were blindsided when, on Friday, Dec. 8, the commission proposed a one-year freeze on programs that didn't submit their implementation plans by Dec. 8.

Desert Community Energy ended up submitting its plan the following Monday, Dec. 11.

After two years of working on community choice, the proposal "unfairly pulls the rug out from under us," Cathedral City council member Shelley Kaplan, who chairs Desert Community Energy's board of directors, wrote in a letter to the commission last month.

"Had we not gone above and beyond to consult with our long-term partner (Edison), and instead submitted our Implementation Plan... on December 5, 2017, we would have slipped under this proposed retroactive, arbitrary, and capricious deadline," he wrote.

Rancho Mirage originally considered joining the Coachella Valley Association of Government's program. But the city has sparred with CVAG on the proposed CV Link bike path, and ultimately decided it wanted to pursue community choice independently.

Rancho Mirage instead joined California Choice Energy Authority, a joint powers authority started by the city of Lancaster to help other cities run community choice programs. Hagerman, the city's director of administrative services, said the Lancaster-led authority will negotiate power purchase agreements and provide regulatory support, meaning the city won't have to pay consultants or hire staff to perform those services. But elected officials in Rancho Mirage will still decide what kind of power to buy, how to market the program and, crucially, how much to charge residents for electricity.

"It's basically a way to get the economies of scale... without having to sacrifice local control," Hagerman said.

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While Rancho Mirage's electricity contracts won't be finalized for a few more weeks, Hagerman said, the city's plan to offer rates 5 percent lower than Edison's is based on two years of study by consultants. Hagerman said the city would benefit from the fact that another member of California Choice Energy Authority, the city of San Jacinto, plans to launch its community choice program in a few months, meaning the joint powers agency will be able to negotiate electricity purchases for the two cities together.

Rancho Mirage plans to offer a power mix that's 35 percent renewable energy — higher than the 28 percent now offered by Edison — with another 15 percent coming from hydropower, which also doesn't create planet-warming pollution. Homes and businesses that want 100 percent renewable energy will be able to get it for an average of $4.40 more per month, depending on how much electricity they use, Hagerman said.

The 1,700 Rancho Mirage ratepayers with solar panels, meanwhile, will still receive net metering benefits as they do under Edison — with the exception that the city will double the end-of-year rebates they get for the excess generation they contribute to the grid.

City officials expect the community choice program, known as Rancho Mirage Energy Authority, to save residents $1.4 million in its first year alone. In the long run, they think the savings will be even greater, since eventually the exit fees to Edison will go away.

"The city of Rancho Mirage has always been on the forefront of providing quality services to our residents. Today is no different. Better service and reduced cost are our ultimate goals," council member Richard Kite said before Thursday's vote.

Imperial Irrigation District customers in Rancho Mirage and other Coachella Valley cities with community choice programs will continue to get their electricity from IID, which is not an investor-owned utility and offers lower rates than Edison.

Sammy Roth writes about energy and the environment for The Desert Sun. He can be reached at sammy.roth@desertsun.com, (760) 778-4622 and @Sammy_Roth.