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Community choice takes Calif. customers at a furious pace, panelists tell PUC

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Community choice takes Calif. customers at a furious pace, panelists tell PUC

Community choice aggregators and direct access energy providers could take up to 80% of investor-owned utilities' customer load statewide in a "fast and furious" trend toward customer choice, a San Diego Gas & Electric Co. executive told California regulators.

As panel moderator for the California Public Utilities Commission's Feb. 1 "en banc hearing on community choice aggregator issues," Severin Borenstein of the University of California, Berkeley Energy Institute at Haas said transition concerns stem from the California energy crisis of 2000-2001. The electricity shortage and spiraling prices followed direct access competition when the state deregulated its electricity market. In that light, the renowned expert on state energy markets called for panelists to examine issues of competition between investor-owned utilities, or IOUs, and community choice aggregators, or CCAs, and direct access resource providers.

SDG&E Vice President of Energy Procurement Emily Shults said customer choice is accelerating at the same time load forecasts are flat or declining. Additional customer departures will result in excess resources in utility portfolios and the potential for stranded resources. SDG&E is a subsidiary of Sempra Energy.

"It is essential that we recover the cost of rebalancing our portfolio from all the customers for whom we procured resources in the past," Shults said. "The cost recovery mechanisms for recovery from departing customers are unfortunately broken. This results in cost shifts to bundled customers and encourages additional load departure."

It is time for the PUC to address these problems, she said, contending that the Legislature requires IOUs to make siloed procurements under various mandates that have not been imposed equally on all load-serving entities. "Continuing to implement policy through IOUs alone is not sustainable as we may not be the entities serving the majority of load," Shults said. "CCAs and the potential for load departure is accelerating fast and furious."

Attorney Matt Freedman of The Utility Reform Network, a customer advocacy group, said community choice has accelerated because of low energy prices and significant market surpluses due to long-term contracts IOUs have signed. He drew a parallel to the energy situation that existed in the 1990s when California deregulated to allow customers direct access to energy suppliers.

But Freedman warned that CCAs are taking California back toward supply shortages and high prices because they rely heavily on existing resources, such as hydropower and renewable energy credits from out-of-state resources. They do not do much to develop new resources, he said. "Consumers want more clean energy, but they don't understand what is meaningful" when CCAs pitch green portfolio offerings to them, Freedman said.

"The utilities have primarily procured new resources, particularly on the clean energy front under long-term contracts," Freedman said. "That's what got us to the state of success that we're in today. New CCAs, when they form, primarily sign short-term contracts for existing resources and it takes many years for CCAs to be able to get new projects built."

The immediate effect of customers migrating to CCAs is that the system trades long-term procurement of new resources by utilities for short-term procurement of existing resources, he said. "If utilities lose a significant chunk of their retail load, they will have no appetite for new resource procurement," Freedman said.

California needs CCAs to pick up the slack by developing new resources. "Otherwise, we are facing literally a valley of death for new resource procurement. The pipeline is already running dry," Freedman said.

MCE Clean Energy CEO Dawn Weisz, who heads the state's first, largest and most successful CCA, said MCE is signing long-term contracts with California-based green energy suppliers that are developing new resources close to load.

She said MCE is also piloting energy efficiency and load-shifting programs that shift load away from peak use periods. For example, the agency is able to automatically control electricity consumption of residential thermostats and swimming pool pumps and is looking to aggregate these demand response measures to participate in California ISO markets.

MCE has a stake in such programs because it has to pay the ISO if the CCA's customer load increases beyond load forecasts and the price for power in real time can be very high. The agency also is impacted by the "duck curve" of steep ramps in energy use when solar production falls quickly, so it is looking for ways to use battery storage, she said.

"Market competition is a good thing. CCAs bring innovation through nimble community-based efforts," Weisz said.

Further, CCAs have procured more than $1 billion in long-term renewable energy contracts. MCE alone has signed 600 MW in power purchase agreements for new supply resources and many of those contracts are for greater than 10 years, she said. In contrast to direct access providers of the 1990s CCAs must demonstrate they are fiscally sound counterparties and will meet their commitments to customers, she said.