As California Mulls Retail Electricity Choice, Utilities Are Losing Customers in Droves

Back in March, GTM broke the news that California regulators are considering some big changes to the state’s energy landscape, including the possibility of returning to some form of competitive retail choice for electricity — as long as it doesn’t repeat the mistakes that led to the Enron-engineered energy crisis in 2001. 

This week, the California Public Utilities Commission and California Energy Commission will be holding their first hearing to talk through this contentious, yet timely, issue. To guide that discussion, the CPUC and CEC released a white paper to “frame a discussion on the trends that are driving change within California’s electricity sector and overall clean-energy economy.” 

The joint white paper doesn’t give any answers to the questions it raises — that’s coming later. But it does lay out a compelling case for why California must act soon to deal with the issue.

While California’s big three investor-owned utilities remain the provider of last resort for the state’s energy consumers, an increasing share of their customers are being lost to existing retail energy access programs, to city and county community choice aggregators (CCAs), and of course, to the rising share of power generated by rooftop solar and other distributed energy resources.

Between rooftop solar, CCAs and large “direct access” customers that work with energy service providers, as much as 25 percent of retail electric load will be effectively unbundled and served by a source other than an investor-owned utility sometime later this year, the paper noted. And these trends are only accelerating. Over 85 percent of retail load could be served by sources other than the investor-owned utilities by the mid-2020s — effectively putting the state on a path toward a competitive market for consumer electric services. 

But this change is now occurring “without a coherent plan to deal with all the associated challenges that competition poses, ranging from renewable procurement rules to reliability requirements and consumer protection,” the paper noted. That means California must “now look at long held assumptions in their regulatory frameworks and examine the role of the electric utility at the center of this system.” 

CPUC President Michael Picker shared his thoughts on this imperative on The Interchange podcast back in March, when he first floated the idea of looking at retail energy access. Compared to the state’s previous, “top down” attempts at deregulation between 1995 and 2001, today “we're starting to see retail choice come into being simply because of technology and the commodity on renewable electricity allowing it to take place,” he said. “It’s being hollowed out by innovation and technology rather than by policy regulation.” 

California’s current struggles are a byproduct of the success of its energy efficiency policies, which have have sharply reduced growth in demand for electricity, and its policies supporting utility-scale solar and rooftop solar. The state’s net energy metering regime has helped more than 550,000 customers to go solar since 2007, adding about 4,500 megawatts of generation on the edges of the grid. 

Programs like the Self Generation Incentive Program have “furthered market transformation for additional technologies like fuel cells, thermal storage and lithium ion battery storage, allowing customers to produce their own power and /or to reduce their peak energy consumption,” the paper noted.

Meanwhile, large commercial and industrial customers have been clamoring to be added to the relatively small number of customers who were grandfathered into the state’s post-energy crisis direct access program. 

Finally, after a slow start, CCAs — entities formed by cities and counties to buy their electricity outside of the traditional utility framework — are really starting to take off. Marin Clean Energy formed California’s first CCA in 2010 and now serves 255,000 customers in Marin County, Napa County and six cities. Along with others such as Sonoma Clean Power, Lancaster Choice Energy, Clean Power San Francisco and Peninsula Clean Energy, 915,000 customers currently take retail energy through CCAs. This is deeply worrying to investor-owned utilities.

The state's investor-owned utilities are seeing a decline in their volumetric sales of electricity, which pay for the “vast network of connected infrastructure and services” that keep the lights on in California. This could end up shifting an increasing share of the costs of maintaining the network for fully bundled customers — thus raising rates, and potentially pushing more customers to seek alternative sources of energy, in what industry observers have dubbed the “utility death spiral.” 

Below are the main questions regulators are considering as part of this examination: 

  • How does the State of California ensure that the many different players work together to ensure that the State’s electric supply is not only clean but is also reliable, efficient and resilient? For example in light of the changes underway in the State’s electric system, how should the State provide such products and services as ramping power, voltage support, frequency control and managing over-generation? How should the State’s electric system become more resilient (e.g., capable of fending off attacks from physical and cyber threats, as well as speedy recovery from disasters)? How will California’s consumers pay for the many mandated public goods programs, ranging from energy research to providing energy efficiency upgrades and rate discounts for low income customers, which the California legislature has determined are core elements of the State’s electric system? 
  • What are the roles of the incumbent electric distribution utilities in the future, and what are the means for them to finance their core functions (e.g., distribution service, transmission service, POLR retail service) where some of these services are provided to all electricity customers and some are provided to only some customers (and in some cases may be provided because no other supplier is willing and/or able to provide them)? 
  • As an increasing number of customers can obtain electric generation service from a variety of sources (including IOUs, ESPs, CCAs, and on-site technologies), how does California ensure that all customers get the benefit of having multiple institutions play an important role in helping finance the infrastructure needed to meet the State of California’s GHG strategies, including electrification of transportation and fuel switching in the natural gas industry, while also ensuring that all customers have access to at least basic electric service? 
  • Who will be the provider of last resort for customers who don’t seek to make key decisions for themselves, but prefer a simple and reliable bundled service? What agencies are best designed to provide customer protection in this new electric industry structure? What policies and/or authorities are necessary for utility regulators (or others) to assure that all customers – regardless of their supplier of generation and/or delivery service) have access to reliable and efficient electricity supply that also supports California’s economic and environmental goals? 
  • How will the State of California provide protection for consumers against predatory actions by providers of electric service or energy technologies in these new policy settings?

Listen to Michael Picker talk about the retail choice imperative on The Interchange podcast:

from GTM Solar https://www.greentechmedia.com/articles/read/california-utilities-are-losing-customers-in-droves

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