Op-Ed: California Agencies Hold En Banc on Retail and Customer Electricity Choice

The en banc was intended to address a seismic shift in the entities serving load in California. As noted in the CPUC Staff White Paper issued in connection with the en banc meeting, by the end of this year, as much as 25% of the retail load served by the investor-owned utilities (IOU) will obtain their electric generation service from an entity other than an IOU.  Some estimates project that by the middle of the 2020s, over 85% of retail load may be served by sources other than the IOUs.  These changes are driven by the explosive growth of both distributed generation, primarily rooftop solar, and Community Choice Aggregation (CCA).  Direct access customers also comprise a significant portion of the retail load served by non-IOUs.

California has been extremely successful in pursuing its greenhouse gas reduction goals and expanding renewable energy procurement in the electricity sector. The question arises, however, as to how California will continue to pursue these goals under a scenario where 85% of the retail load is served by entities other than IOUs, whose current procurement decisions are not reviewed or approved by the CPUC, unlike the IOUs.  How will California pursue its greenhouse gas reduction goals, while maintaining reliability and affordability, especially for low and middle income residents, under a regulatory and procurement regime that is far less centralized than the regime that resulted in California’s current successes?  The Commissioners acknowledged that they will need to examine the current business models for load-serving entities and determine whether they can achieve the state’s ultimate goals.

Among the topics discussed at the en banc was the issue of exit fees. In order to comply with California’s Renewable Portfolio Standard (“RPS”) mandate, IOUs procured renewable energy under power purchase agreements that are priced much higher than the current market.  As the IOUs’ retail load decreases, their RPS obligations similarly decrease, potentially leaving IOUs with highly-priced RPS contracts that are in excess of their RPS mandate.  Under the statute, implementation of a CCA cannot result in cost shifting between CCA customers and those customers choosing to remain with the IOU.  Thus, as these contracts were procured to serve customers who are now migrating to CCAs, arguably those costs should follow customers.  Other issues arise from potential “double procurement,” where CCAs procure renewable power for the same customers that IOUs have already signed long-term RPS contracts to serve.

The en banc consisted of four panels–a customer panel; a provider panel, consisting of distributed generation providers, direct access providers, and CCAs; a utility panel, and an industry expert panel. Though no clear answers emerged, the Commissioners will take the input from the meeting back to their respective Commissions as they address current and future proceedings dealing with the rapid expansion of retail choice.