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Calif. utilities face rapid customer exodus, CPUC president says

California's top energy regulator foresees a narrowing future for centralized utilities. California utilities are rapidly losing energy customers to community choice aggregators, or CCAs, and could soon lose 40% or more of their sales, California Public Utilities Commission President Michael Picker told fellow commissioners at a recent meeting.

During the commission's Jan. 19 voting meeting, Picker said a growing number of cities, counties and other authorized entities are forming CCAs to purchase, and in some cases generate, electricity for residents and businesses located within their jurisdictions. Communities are attracted to CCAs by lower rates, cleaner energy, the economic benefits of nearby energy resources — distributed solar facilities, local control over energy supplies, conservation measures such as demand response and energy efficiency — and other CCA offerings. In addition to five operational CCAs, many more are in planning stages, Picker added. If all of the eligible cities in Los Angeles County offer aggregation programs, Edison International subsidiary Southern California Edison Co. would lose 40% of its retail energy sales, he noted.

San Diego and several other cities in the San Diego County have proposed CCAs that would reduce Sempra Energy subsidiary San Diego Gas & Electric Co.'s retail sales 44%, Picker continued. Most of the currently operating CCAs lie within the service area of PG&E Corp. subsidiary Pacific Gas and Electric Co., which could see an additional sales loss of 21% in 2017 alone, Picker predicted.

However, PG&E indicated it believes the customer shift to CCAs will be more gradual. "In our filing with the CPUC about the Joint Proposal on Diablo Canyon Power Plant, we noted that we expect to see 21% of our generation load shifting to CCAs by 2020," said PG&E spokesman Donald Cutler by email. "It is important to note that these customers will remain PG&E customers for transmission and distribution services, with the generation portions of their service provided by their local CCA."

Revolutionary technology and wooden poles

San Francisco, where PG&E is headquartered, launched its CCA on May 1, 2016, and is rolling out its CleanPowerSF services in stages. A Nov. 2, 2016, report to the San Francisco Public Utilities Commission said the program had 7,865 customers and was in the process of enrolling an additional 72,548 customers. Renewable Energy Manager Woody Hastings at the Center for Climate Protection, based in Santa Rosa, Calif., said more than 300 municipalities in California are operating, participating in or evaluating CCAs. Center for Climate Protection data shows CCA activities in 27 counties of the 58 counties in the state.

"Our estimate is if all current efforts underway all pan out something order of 60% of eligible investor-owned utility load is going to be served by CCAs," Hastings said.

Technology is driving customer choice, just as it is revolutionizing the sources of energy and how it is used. Loads are shifting in unpredictable ways. Commercial customers use time-of-use rates to buy cheap power in the morning, store it in their batteries and use it in the afternoon to avoid high-priced electricity from the grid during hours of peak demand. They can also sell some of that stored power to utilities during those peak hours.

Not only is technology driving ever lower prices for abundant renewable energy, but also diverse forms of renewables are competing with one another. The California ISO has found that rooftop solar with smart inverters could deliver the same results as a 300 MW solar farm in the desert. Eventually, third parties may have the ability to aggregate thousands of rooftop solar customers to provide the same services as gas-fired peakers, Picker said.

At the same time, space on often overloaded utility poles is at a premium because those wires must carry electricity two ways, including increasing amounts of customer-generated solar power. In addition, pole and utility conduit owners are required by federal law to provide nondiscriminatory access to communications providers, and telecom and cable companies compete for space on aging wooden poles, as well.

"Access to those poles is becoming very competitive," Picker said. "For both electricity and communications, you may find that the wooden pole and underground conduit is the last remaining natural monopoly."

Ways utilities get paid must change

Even as more utility customers depart, demand for electricity overall is falling. The PUC will have to adapt utility rate schemes to compensate for utility load losses. While regulated utilities offer services other than just energy, they get paid out of a bundled rate for electricity sales. "So at the point where 40% of the customers are dropping out of the normal way we compensate utilities for their costs and expenditures, we are going to have to deal with this pretty soon," Picker remarked.

The commission will not only be forced to consider whether it will allow customers to buy their electricity separately from their grid services, but whether third parties should be allowed to offer grid services as well.

"This is a form of retail choice," Picker said. "We will have to figure out how we are going to provide customers that flexibility and who can provide them with different tools, prices and opportunities they seek."

Commissioner Carla Peterman has set a hearing on community choice aggregation for Feb. 1. The PUC's daily calendar indicates the hearing will explore what entities will be responsible for electricity procurement, contracting and reliability in the future, and whether utility assets are likely to be stranded.

Though their customer base is shrinking, the need for regulated utilities will not disappear, Picker asserted.

"We will have to investigate new models for compensating utilities for providing those remaining monopoly functions -- the poles, the wires, the grid management, billing services, some of the reliability services and legacy expenses," he said.

"This is all happening fast," he concluded. "We're in a different world."