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California’s utilities extend cautious support to plan for centralized procurement of renewables

Jordan Smith
By Jordan Smith May 22nd, 2019
4 min read
For business

Legislators and regulators are currently discussing various proposals in California to create a centralized agency responsible for precuring renewable energy for the state’s customers. While they have expressed general support for the initiative, California’s three main investor-owned utilities want lawmakers to carefully consider the proposal before they pass any legislation.

The California Public Utilities Commission (CPUC) is advocating for this agency to guarantee the stability of the state’s energy grid and cope with the decentralization of energy procurement. One of the regulator’s main concerns is that the emergence of community choice aggregators (CCAs), which now supply energy to over 2 million Californians, threatens to undermine grid reliability. CCAs are locally-run government entities that have gained popularity because they are seen by ratepayers as an effective way to secure a good deal on energy rates and increase the use of renewables much faster than the larger utilities have.

Despite the rise of CCAs, utilities still effectively remain responsible for energy procurements in their areas of operations, since they would take back customers in the event of a CCA’s failure to provide services. In their comments to the PUC, the state’s three major utilities, San Diego Gas & Electric (SDG&E), Southern California Edison (SCE), and pacific Gas and Electric (PG&E) made clear that they want this arrangement to change. SCE officials noted that due to growing “fragmentation and disaggregation, it is important for the commission to consider whether a central buyer is needed and if so, who would serve that role and what the scope of the central buyer’s role would be.”

PG&E agreed, proposing the creation of a special purpose entity to serve as a central purchaser, subject to the approval of the PUC. SDG&E commented along similar lines, but also emphasized the importance of the PUC setting out a clear timeframe for the change.

Future role of utilities up for debate

The growing popularity of CCAs has fueled talk of the utilities leaving the energy procurement market altogether and focusing instead on infrastructure, which very much remains a utility monopoly. Even among those who support remaining in energy purchasing, there is mounting opposition to the utilities continued service as an effective backstop under conditions in which a large portion of customers have opted to obtain their energy supply elsewhere.

“We don’t think we should be signing big, long-term contracts for customers that have made a conscious choice to be served by a different [power provider],” argued SDG&E’s vice president of energy supply Kendall Helm. “We think our primary role and our primary value is in the safe and reliable delivery of that power.”

Selling energy has always been a less attractive market for the utilities, which can only charge customers the market price they paid for the product. By contrast, utilities are permitted to make a profit, subject to regulation, when they invest in energy infrastructure, such as the state’s power lines.

Even if the utilities choose to continue selling energy, observers predict that the majority of customers will obtain their power from other sources over the coming years. In 2018, 19 CCAs provided power to 2.6 million California customers. In February of this year, another one million customers in Los Angeles and Ventura counties joined the Clean Power Alliance, California’s largest CCA to date.

For Michael Picker, head of the CPUC, this development poses the risk of repeating the circumstances which spurred California’s energy crisis in the early 2000s, when a lack of regulation triggered power outages and a rapid increase in energy prices statewide. Unless new regulatory measures are adopted, argues Picker, the decentralized energy supply market could prove vulnerable to unreliable supply and blackouts.

Another concern for Picker is that CCAs lack a track record. This makes it harder for them to negotiate long-term, competitive contracts, which may lead to additional costs for ratepayers. “There isn’t a crisis today,” stresses Picker. “But we have de facto deregulation, and without a clear plan in place, we can slide into the problems we had in the past.”

Advocates defend CCAs’ reliability

CCA advocates challenge the portrayal of local providers as unreliable and expensive. Many pointed to PG&E’s bankruptcy declaration earlier this year to underscore that utilities are no more secure than CCAs. To date, none of California’s CCAs have collapsed.

Geof Syphers, CEO of CCA Sonoma Clean Power, notes that CCAs already have plans in place to increase renewable energy use from 2 gigawatts to 3 gigawatts this year. Moreover, he adds that the local providers have a 10 gigawatt target by 2030, with a rising percentage of this coming in the form of long-term contracts. Although most CCA advocates accept that a certain degree of centralized coordination is necessary, they oppose the extensive powers being called for by Picker.

These conflicts appear set to continue as legislators move ahead with the introduction of new regulations. In April, a bill passed California’s Assembly Utilities and Energy Committee grants the PUC power to establish a central procurement entity. The bill, AB 56, still has several stages of scrutiny and voting to go through before it becomes law. However, Democratic Governor Gavin Newsome’s wildfire and utility policy strike force has declared the establishment of a centralized procurement agency as a top priority for 2019. Therefore, a decision one way or another in the coming months seems likely.

Jordan Smith is a freelance journalist and translator covering issues related to energy, the environment, and politics. His work has appeared on the independent news site Opposing Views, and at the Canadian Labour Institute.