Riverside County Community Energy Program of Choice becomes first in California to file for bankruptcy

A community-based energy program of choice serving six towns in Riverside County has filed for bankruptcy after just one year of operation, but officials from two recently launched San Diego-area energy programs say they do not risk a similar fate.

The board of directors of Western Community Energy, also known as WCE, declared a tax emergency on May 24 after saying in a staff report that without “an immediate infusion of working capital,” it would be “incapable. to pay his bills as they fall 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 develop plans to reorganize debt and pay off creditors.

The staff report listed $ 27 million owed to lenders and Bloomberg News referred to court documents claiming Western owed creditors up to $ 100 million but had less than $ 50 million in assets available.

Western is one of 24 Community Choice Aggregation Programs, or CCAs, across California that provide an alternative to investor-owned utilities with respect to purchasing power in the communities they serve. Western is the first CCA in the state to seek bankruptcy protection.

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

The Riverside County Press-Enterprise newspaper reported last week that a spokesperson for the agency said WCE would likely increase electricity rates over the next several years, with customers seeing an average increase of $ 5. at $ 10 per month.

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

First, the number of customers who have fallen behind on their utility bills “has grown by five to ten times more than industry standards” due to the financial effects of the pandemic. Orders from Gov. Gavin Newsom and the California Public Utilities Commission prohibiting utility companies from disconnecting customers for non-payment have resulted, the company said, in losses of around $ 6 million.

Western requested about $ 25 million in funding through the federal government’s COVID-19 bailout, but guidelines tightened and WCE was unable to secure a bridging loan.

The agency also singled out the extreme heat wave that hit California last August. WCE officials said they had supplied 90% of its electricity needs for the summer, but “the heatstorm blew up anticipated needs” when customers turned on their air conditioners, resulting in costs. additional energy costs of $ 12 million.

The results also took another blow, Western officials said, when the utilities board increased the need for renewable energy. Western launched in April 2020, just after the statewide lockdowns went into effect.

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

Two San Diego CCAs were launched this year:

Barbara Boswell, acting CEO of the Clean Energy Alliance, said her group had installed financial measures to prevent what happened in Riverside County.

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

The Clean Energy Alliance began recruiting customers in May, and by the end of this month it will have approximately 58,000 customers. It is forecasting reserves of $ 3.1 million for the 2021-2022 fiscal year budget, slightly exceeding its target of 5% of revenue.

San Diego Community Power, or SDCP, said it is also hitting its 5% target, with $ 17.7 million in reserves projected in the next fiscal year.

“We have the checks and balances, the goals, the targets, the expertise – all to apply industry best practices,” said interim CEO Bill Carnahan. “Many CCAs have been around for over 10 years and they are thriving. We are in this 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 recruit approximately 695,000 residential customers, making SDCP one of the largest CCAs in the state.

“We wouldn’t be moving forward if we didn’t have confidence in our position, the policies we have in place and the staff we have,” said COO Cody Hooven. “We are confident that our rates match our costs and we are comfortable for the summer with supply levels. “

But for CCA skeptics like San Diego businessman Bill Roper, Western’s woes represent flashing yellow warning signs.

“Even under ideal circumstances, without COVID, it is difficult for CCAs to have a viable financial model,” Roper said. “They have to have working capital. They have to pay down payments for these agreements. They have to fund themselves … Even the SDCP, if they had been opened on a large scale (when the pandemic hit), they would have had a big problem.

Roper said Western’s financial losses due to an increase in non-payments following the pandemic could not be anticipated, but he had no sympathy for the WCE attributing some of his problems to the extreme heat of last summer.

“It wouldn’t be surprising to see more of the smaller, less mature CCAs having liquidity issues and most likely having to file for bankruptcy,” Roper said. “They don’t have the capital, they don’t have the reserves, and they haven’t sufficiently anticipated price spikes and volume spikes.”

Created by the California legislature following the state’s energy crisis in 2000 and 2001, CCAs are designed to stimulate the purchase of cleaner energy sources such as wind and solar at equal rates or lower than those of investor-owned utilities. Decisions are made by government officials instead of the historic utility, like San Diego Gas & Electric.

However, the establishment of a CCA does not mean the disappearance of traditional public services. SDG&E, for example, will still perform all tasks apart from purchasing electricity, such as power transmission and distribution and customer billing.

According to state law, once a municipality forms a CCA, all of its electricity customers are automatically enrolled. In San Diego, if SDCP and Clean Energy Alliance customers wish to opt out and stay 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 does not meet its financial obligations.

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