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Q&A

Pioneer Community Energy talks risks, rewards
By: Gus Thomson, Reporter/Columnist
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Interest levels are high as Pioneer Community Energy arrives in the February billing cycle, with lower rates already pledged.

A Jan. 17 public presentation in Lincoln, for example, drew about 700 audience members. Residents are being given the option of going with Pioneer electric generation or opting out and staying with Pacific Gas & Electric Co.

Placer County has joined the cities of Auburn, Colfax, Lincoln and Rocklin, plus the town of Loomis, to form the Pioneer partnership, allowed under state law to be the provider of electricity to homes and businesses.

Ratepayers will continue to receive a single bill from Pacific Gas & Electric

Co., with Pioneer’s electric generation charges replacing PG& E’s charges.

The Loomis News asked six key questions and Pioneer responded with the answers that follow.

1. What is the potential upside for Placer County residents in having Pioneer Community Energy?

“The long-term potential for Pioneer Community Energy is to provide considerable economic benefits for Placer County. The board has directed that all rates be dropped 3-percent for the first year of Pioneer’s operations. This is a savings of more than $2.3 million annually that will stay here in Placer County.

While Pioneer is currently providing an immediate 3-percent rate reduction, benefits to Placer County ratepayers are expected to increase over time.

As a new program, the Pioneer Board has been conservative and exercised prudence in its financial decisions by providing a modest benefit in Pioneer’s early stages in order to build reserves to ensure that Pioneer is financially stable and sustainable. Once reserves have been established, and the short-term debt Pioneer will incur for start-up of its operations have been paid-off, revenues can be redirected for increased ratepayer benefits.

Potential benefits include lower, more stable rates (less frequent rate adjustments) and energy-related programs.

Additionally, Pioneer can be a catalyst for developing Placer County renewable resources that can create jobs, and bring other economic benefits, and provide direct environmental benefits.”

2. What are the risks? Particularly on the financial front, what is the potential downside?

“The feasibility analysis and due diligence evaluation of Pioneer included rigorous evaluation of energy markets, by industry professionals, relative to Pioneer’s power acquisition needs.

Energy market price risk is low with forward price curves and other econometrics indicating that energy markets will have continued stability and low price volatility.

In fact, some energy prices are at historic lows and some long-term (20 years) power contracts do even not have price escalators over the entire term of the contract. It is important for Pioneer to take advantage of the current market to develop its power portfolio. In doing so, Pioneer will be able to provide lower rates and price stability to its ratepayers.

From a customer perspective: up to now, ratepayers have not had a choice in their electric generation provider. They now have a choice and they can determine their low-price provider.”

3. What are some ways Pioneer is taking to reduce risks?

“The Pioneer financial model includes many variables, which can be changed to evaluate various scenarios. The most significant variables are Pioneer’s wholesale cost of power and kWh retail revenue for the sale of the power. Using this financial model, the Pioneer budget has been based on wholesale power costs which are higher than current market prices and revenues that are less than expected. Other variables in the model have also been conservatively assumed.”

4. With PG& E, a “Smart Days” “SmartRate” program allows customers to conserve power and lower their rates during peak usage times. Is there a matching or similar program in place of Pioneer Energy? If not, is Pioneer considering implementing one in the future?

“The SmartRate residential program is managed by PG& E through its transmission and delivery system. Pioneer does not have access or authority over PG& E’s transmission and delivery system; therefore, Pioneer is not able to provide a similar program.

The Pioneer Board will consider other energy programs in the future. Customers who participate in the SmartRate program should make their decision, whether to be automatically enrolled in Pioneer or to opt-back to PG& E, by comparing their 3- percent savings on Pioneer’s generation charges to their SmartRate plan savings."

5. Give us your best pitch for customers to stay with Pioneer and not opt out for PG& E.

“Locally controlled utilities, such as SMUD and Roseville Electric, have been historically proven to provide lower rates and beneficial energy programs to their customers.

Locally governed utilities provide customers greater access to the energy decision making process, including rate setting, and energy programs.

Pioneer Community Energy customers will receive an immediate 3-percent rate reduction across all rate classes for electric generation.

After Pioneer establishes its reserves, it will be able to re-direct its revenues to increased customer benefits. Initially, the combined savings will keep more than $2.3 million from being drained from the Placer County economy annually. Through other programs being considered by Pioneer, the economic benefit to the Placer County could double within the next couple of years.”

6. What changes will residents see in customer service?

“The transition to Pioneer electric generation will be seamless to customers. Customers will not see a change in service and will still receive only one bill from PG& E. PG& E continues to own, operate, maintain and service the transmission and delivery system and electric meters. Since ratepayers remain PG& E customers for these services, customers will continue to contact PG& E for outages and service calls.

PG& E will continue to read meters and bill customers. PG& E’s charges for electric generation will be replaced by Pioneer’s lower rates for electric generation on customer bills.”