Finance committee forwards Santa Barbara Clean Energy rate policy changes to council after staff outlines $14 million shortfall

The Santa Barbara City Finance Committee voted unanimously Feb. 11 to forward to the City Council a staff recommendation to maintain Santa Barbara Clean Energy’s (SBCE) current generation rates rather than follow recent Southern California Edison (SCE) reductions, and to use reserves and targeted cost cuts to narrow a projected fiscal-year 2026 deficit.

SBCE Sustainability and Resilience Director A'Lelia Parenteau told the committee the program faces a roughly $14 million projected deficit in FY 2026 under its current rate-setting formula after two recent SCE rate reductions (one in October 2024 and another in January 2025). Parenteau said staff recommends holding SBCE’s generation rates steady — allowing a premium up to 3.6 cents per kilowatt-hour over SCE for the SBCE 100% green product — combined with $3 million from rate-stability reserves and $5 million in cost reductions to reduce the FY 2026 shortfall to about $3 million.

The recommendation would preserve SBCE’s Green Start product at parity with SCE’s base rate and keep the program’s default 100% green product priced at a fixed premium rather than moving down with SCE’s recent cuts. Parenteau told the committee SBCE has sufficient reserves to cover the proposed approach in FY 2026 but that doing nothing would deplete the program’s reserves and leave it vulnerable to future shortfalls.

Why it matters: SBCE is the city’s community choice aggregation program that has operated since 2021. Its rate-setting formula ties SBCE prices to SCE’s base rate; when Edison’s rates fall, SBCE’s revenues can fall while SBCE’s forward power procurement contracts remain fixed. Parenteau said that dynamic — combined with legacy contract accounting, market shifts and customer migration from investor-owned utilities to CCAs — is driving the current budget pressure.

Key details discussed

- Deficit drivers: Parenteau attributed most of the pressure to the timing of SCE’s rate adjustments and to SBCE’s fixed, forward power contracts. She said SCE returned an overcollection from prior years, then cut generation rates in January 2025, reducing the revenue SBCE receives under its parity-linked formula.

- Cost levers examined: Staff identified roughly $5 million in potential reductions, including (a) substituting lower-cost carbon-free resources (for example, additional hydroelectric purchases) for some bundled, Category 1 renewable purchases (estimated savings about $2 million in the pro forma); (b) accepting certain allocations related to legacy nuclear contracts from PG&E and SCE (estimated value about $1.15 million); and (c) delaying unlaunched programs and holding vacant positions (about $1.3 million in operational savings).

- Nuclear allocations and PCIA: Parenteau explained that some legacy contract attributes (often described as “nuclear allocations” tied to Diablo Canyon and other legacy contracts) have become marketable commodities. SBCE currently pays for these attributes through the departure-charge mechanism known as the PCIA (purchase cost indifference adjustment). Staff proposes to claim certain allocations (including an allocation tied to PG&E’s Diablo Canyon extension) because the attributes now have positive market value; Parenteau emphasized this would be an accounting decision and would not extend the Diablo Canyon plant’s life.

- Resource adequacy option: Staff noted open resource adequacy (capacity) positions for September 2025 and September 2026. Because market prices for September resource adequacy have traded at more than $100 per kilowatt-month while the state penalty for under-procuring is $8 per kilowatt-month, staff said it is considering taking the penalty rather than procuring costly September capacity; the committee was told SBCE does not intend to expand service during any resulting one-year restriction.

- Rate-setting proposal: Staff evaluated several scenarios. A revenue-neutral rate increase sufficient to eliminate the deficit would require about a 6.5-cent-per-kWh premium on the 100% green product, which staff judged not palatable. The preferred approach is to hold generation rates at current SBCE levels (not adopt Edison’s January reductions), authorize a premium up to 3.6 cents per kWh for the 100% green product (about a 10% premium over Edison for that product), apply $3 million from rate-stability reserves, and implement the identified $5 million in cost reductions. That approach was projected to reduce the FY 2026 deficit to roughly $3 million and to a roughly $0.5 million deficit in FY 2027 under current assumptions.

Committee discussion and vote

Committee members asked staff clarifying questions about whether “decoupling” from SCE would shift delivery/infrastructure responsibility (Parenteau said decoupling referenced unlinking SBCE’s rate formula from Edison’s frequent, formulaic rate changes, not assuming Edison’s delivery responsibilities), about how reserve and program funds are distinguished in budgeting, and about whether customers’ bills would rise under the proposal (Parenteau said maintaining current generation rates would keep bills at current amounts for now despite the premium authorization). Parenteau said staff expects to re-evaluate the premium when SCE’s October rate adjustment sunsets an overcollection and that the city administrator would have authority under the existing SBCE rate-setting policy to reduce the premium downward without returning to council, up to the ceiling set by council.

Member Rouss moved to forward staff’s recommendation to the City Council. The motion received no named second in the record. The committee voted unanimously in favor; the chair announced the motion passed unanimously.

Action recorded

- Motion to forward staff’s SBCE rate-setting recommendation to City Council for adoption; mover: Member Rouss; second: not specified; outcome: approved (unanimous). The committee will send the item to City Council on Feb. 25, 2025, for consideration.

What’s next

Staff plans to bring the proposal to the City Council meeting on Feb. 25, 2025. Parenteau told the committee staff will closely monitor SCE’s October rate-setting change (when the earlier overcollection is expected to fall off) with the goal of reducing the premium if market conditions permit. Staff also said it will explore decoupling SBCE’s rate formula from Edison and continue to evaluate procurement and program timing decisions to limit future rate instability.

Ending details: SBCE has operated since 2021; staff emphasized the proposal seeks to preserve reserves and program stability while avoiding an immediate across-the-board customer bill increase. The committee closed the item and adjourned.