California Seeks Way to Get Energy Choice Right This Time

Aug 17, 2018

Elisa Wood  |  Microgrid Knowledge  |  August 14, 2018

Given its influence, it’s never a pretty sight when California goes astray on energy policy. The energy crisis of 2000-01 still looms large. Its rolling blackouts and skyrocketing costs impaired America’s then nascent customer choice movement.

customer choice

By John_T/Shutterstock.com

But fast forward nearly two decades and customer choice is reborn — although not in the way the state first envisioned, and now with California positioned as a strong success story.

The early round deregulated the industry to allow California customers to buy energy — in limited circumstances — from competitive retail suppliers rather than utilities. Now customers are bypassing both to generate or store electricity onsite with microgrids, nanogrids, solar plus batteries, electric vehicles, and other forms of distributed energy.

California doesn’t want to bring harm to this new incarnation of customer choice. Quite the opposite. A world leader in distributed energy, it is seeding the resource as a means to reach renewable energy, carbon and reliability goals.

Energy ship California

But how does this big ship — the fifth largest economy in the world and consumer of 8 percent of US energy — keep a steady hand on the rudder amidst the rapid change in energy today?

To figure that out, the California Public Utilities Commission (CPUC) launched the California Customer Choice Project, which released its final report this month “California Customer Choice: An Evaluation of the Regulatory Framework Options for an Evolving Electricity Market.”

 California’s microgrid installations have increased 220 percent

Distributed energy has seen tremendous growth in the state. In just four years, California’s microgrid installations increased 220 percent; distributed advanced energy storage 548 percent; and behind-the-meter solar 180 percent. These technologies, combined with also fast-growing community energy aggregations, ordain a flight from utility service.

This means splintered decision-making, according to Michael Picker, CPUC president. Maintaining electric reliability, once the domain of a few centralized utilities, now depends on the actions of dozens of individual entities. As of September 2018, the state will have 37 entities serving electric load, including three investor-owned utilities, fourteen competitive retail suppliers, and nineteen community choice aggregators.

“If we are not careful, we can drift into another crisis,” — Picker

“In the last deregulation, we had a plan, however flawed. 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,” wrote Picker in the report’s introduction.

So the state is re-evaluating some of its long-held beliefs about the role of the utility and considering rules for the new distributed energy players. It’s also grappling with how to ensure electric reliability in the face of catastrophe, such as its wildfires. At the same time, California wants to continue to pursue its aggressive green energy and carbon reduction goals.

The report finds that “without a coherent and comprehensive plan, the current policies in place may drift California to an unintended outcome, like the California energy crisis, and breakdown in services.”

The way forward for customer choice 2.o

To find a way forward the paper details not only California’s energy history and current policies, but also compares the state to four other jurisdictions with customer choice programs: Great Britain, where average electric rates are 22.17 cents/kWh; Illinois 12.54 cents/kWh, New York 17.58 cents/kWh and Texas, 10.99 cents/kWh. California’s average electric rates are 17.39 cents/kWh.

“New York’s regulatory model supports the development of local, clean energy through customer choice in DER. Illinois’ market is characterized by a large degree of community aggregators; and in both Great Britain and Texas, customers choose retail service providers, albeit with significantly different options and policy drivers,” said the report.

In addition to studying other models, the report asks a series of questions that will guide its next step, creation of an action plan. Among them are:

  • How does California continue its course as a global leader in achieving deep decarbonization as regulated utilities provide electricity to fewer Californians?
  • What are the essential grid operations to make sure California’s lights stay on?
  • Can California provide investment and operational certainty to address reliability and resiliency, especially in the face of catastrophic events that impact the electric sector, such as the 2017 wildfires?
  • Are there adequate protections for all customers with the wider choices created?
  • What is the role of the investor-owned utilities in the new regulatory construct?
  • Regulated utilities were required by laws, like the Renewables Portfolio Standard, to enter into long-term contracts. If customers increasingly buy electricity from non-utility sources, what happens to the contracts that the regulated entities executed?

The CPUC is using the questions to guide creation of a customer choice action plan, with a draft due for release in September. Public workshops on the draft will be held in October.

The customer choice report is available on the CPUC website.

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