Calif. Regulators See Rough, Shifting Terrain Across Electric Industry Landscape

California regulators looked into the changing nature of retail electric choice and heard many competing voices among consumer advocates, industry representatives, service providers and other interests.

The Public Utilities Commission and California Energy Commission jointly hosted a hearing in Sacramento, Calif., May 19 to examine unprecedented change in the state’s electricity sector that is resulting from public demand, rapidly advancing renewable energy and advanced grid technologies, and policy actions concerning customer choice, renewable portfolio standards and greenhouse gas emissions goals.

Community choice aggregators, direct access providers and distributed solar customers are taking ever-increasing chunks of retail electric load from California utilities such as PG&E Corp. subsidiary Pacific Gas and Electric Co., Edison International utility Southern California Edison Co. and Sempra Energy‘s San Diego Gas & Electric Co., and the increasing success of energy efficiency products and services is further eroding demand for power from traditional utilities. That makes the regulators’ job of ensuring reliable, affordable electric service for all increasingly difficult, so the commissioners of both agencies called upon a number of panelists to discuss their views and answer questions.

However, the commissioners heard a lot of disagreement from competing interests even before they broke for lunch.

California Large Energy Consumers Association attorney Nora Sheriff emphasized the role large industries have in demand response and pointed out that on the evening of May 3 industries responded to the California ISO‘s emergency call for load curtailment, which she said prevented blackouts. Sheriff said the regulators must provide more demand response options, since with the growth of variable renewable generation, demand response will become more critical. Sheriff proposed more dynamic price signals to provide incentives, including payment to customers who could ramp up their consumption of electricity to “soak up” excess generation during periods when solar power is at its peak and the market is producing low to negative prices to take the power.

Further, she said the state must encourage industry to stay in California rather than forcing companies to leave for other states, which will only shift greenhouse gas emissions to other locations. That will do nothing to address climate change but will lead to economic and employment loss in California, she said.

However, The Utility Reform Network attorney Marcel Hawiger said regulators must accommodate the huge growth in community choice aggregation first before bowing to the renewed interest in reopening direct access. There is excess generation now because large renewable energy facilities have been built in response to state RPS requirements. Larger customers want access to cheap power, but those plants are being paid for in utility customer rates, he said. Community choice is providing distributed generation and can respond to load changes much faster, he said, asserting that direct access does not benefit residential customers, but is built on cherry-picking cheap suppliers with short-term contracts.

Community choice is built on a more long-term model with a stable customer base that may allow for long-term contracting, Hawiger said. The challenge is in meeting the state’s clean energy and reliability goals with a mix of utilities and community choice services and with customers who generate their own solar power, he said, urging the regulators not to expand direct access for large customers until the future roles of these players is worked out.

Sonoma Clean Energy CEO Geoff Syphers said regulators must first increase transparency in utility contracts to curtail the tendency of utilities to exercise renewal options on existing supply contracts that force customers of his community choice agency and other aggregators to pay twice for their energy through stranded cost payments. “When we formed we expected utilities would dispose of those long-term contracts,” he said. “Too much energy is being procured in California.”

PUC President Michael Picker opened the hearing by recalling California’s failed effort to have retail customers choose their energy providers in the late 1990s. “The last time we tried this, leading up to the new millennium, we deregulated the electric industry and we created a flawed retail market and retail design for customer choice. … After the catastrophic collapse of the new markets we very consciously made a decision to return to the three IOUs [investor-owned utilities] and the multiple munis.”

Picker said the state is now moving again toward retail choice by communities to provide energy to those customers who want choices other than what their native utilities provide. However, he said, “We are moving in that direction without that coherent plan to deal with all the associated challenges that competition poses.”

Renewable procurement rules, reliability requirements, customer protection and public purpose programs have been the responsibilities of utilities and have been financed through utility operations. However, that will be upended as community choice aggregators and distributed solar are “just starting this process of hollowing out the investor-owned utilities and their role in central procurement as providers,” Picker said. As California moves to decarbonize its energy future, “The question, fundamentally, is, how do we organize our electric system to achieve our goals and who is going to be at the center of financing that?”

Californians are going to be driving an increasing share of the investments in the energy system through consumer-oriented purchases, he continued.

“This is the challenge of a democratizing electrical system, that as millions of people make choices we also have a whole range of decisions on how do we make sure it adds up to the state’s policy goals,” Picker said.