Electricity Markets

Calif. PUC staff warns utility sector transition needs planning

With Californians increasingly producing their own electricity from rooftop solar and purchasing power from entities other than their incumbent utilities, the state risks a major energy crisis if it continues forward without a coherent and comprehensive plan to handle the transition, according to a draft paper released by the California Public Utilities Commission staff last week.

"Fewer and fewer customers are getting power from the traditional large regional utilities and the central decision making that we use for keeping the grid reliable, safe and affordable is splintering, becoming the task of dozens of decision-makers," the PUC staff said in the May 3 draft paper.

California policymakers need to develop a plan to make sure the state can keep electricity affordable, reliable and de-carbonized while the retail service model is being up-ended, the draft report said. 

More and more customers are getting power from rooftop solar panels, from "community choice aggregators,” or CCAs, and from private direct access providers, according to the draft paper. At the same time, industrial customers are buying power directly from renewable generators, sometimes serving several locations from remote wind or solar facilities, the Commission staff said.

In a sign of the changes that are underway, the PUC staff estimates that within the state, there are about 6,500 megawatts of rooftop solar, about 13 percent of investor-owned utility load is served by direct access providers and that CCAs exist or are being considered in every major city and county.

CCAs accounted for 0.5 percent of California’s regulated IOU load in 2014 but could jump to 19 percent this year based on implementation plans filed at the PUC. In the same period, IOU load could fall from 89.6 percent to 73 percent, according to the PUC, with the remainder served by non-utility electric service providers.

Between rooftop solar, CCAs and direct access providers, as much as 25 percent of IOU retail electric load will served by a non-IOU source or provider later this year and the share of non-IOU load is expected to grow quickly, the draft paper said.

Nonetheless, IOUs will retain responsibility for essential safe and reliable grid operations, the draft paper said.

In the late 1990s, California deregulated its electric utility sector. However, after blackouts and rolling brownouts during the Western energy crisis that started in 2000, the state reversed course and IOUs became the main provider of electricity again in their service territories.

"In the last deregulation, we had a plan, however flawed," PUC President Michael Picker said in an introduction to the draft report. "Now, we are deregulating electric markets through dozens of different decisions and legislative actions, but we do not have a plan. If we are not careful, we can drift into another crisis.”

The PUC will need to develop new rules to manage the transition to increased consumer choices and may need guidance from the California Legislature, according to the draft paper.

Among other things, the PUC warned California's renewable energy ambitions largely rely on IOUs investing in projects by raising low-cost capital in financial markets and then recovering their costs through electricity sales.

The financing method could be in jeopardy as more customers leave their utilities. "There is a question whether the necessary capital investment needed to decarbonize the electric sector to meet the state's 2030 goals and beyond can be financed and, if so, delivered on time if the state transitions away from a few larger buyers to many small buyers," the PUC said.

Other issues to address include consumer protection, whether market forces will be sufficient to replace state mandates in encouraging innovation, how to provide universal service without imposing costs on remaining customers, the roles and responsibilities the IOUs should retain, how to ensure competitive neutrality for all entities selling power to retail customers, providing sufficient information to customers, establishing metrics to measure the success of CCAs and ensuring that disadvantaged communities are served.

The paper is a "call to action" for the Legislature, state agencies, the California Independent System Operator, stakeholders and communities to develop a plan to protect against another energy crisis, the PUC staff said. The draft paper doesn't advocate for specific policies.

In the draft paper, the PUC staff reviews the regulatory approaches taken by New York, Illinois, Texas and Great Britain.

The paper grew out of a joint hearing the PUC and California Energy Commission held a year ago, and the resulting formation of the “California Customer Choice Project.”

The PUC is taking comments on the draft paper until June 4 in advance of a mid-June joint meeting with the CEC.