Not content with having taken over procurement for nearly half of Pacific Gas & Electric Company’s (PG&E) retail customers, a group of seven community choice aggregators (CCAs) have asked the California Public Utility Commission (CPUC) to pull PG&E out of the retail business altogether, so that it can turn its attention to running lines and wires, in light of what they describe as the utility’s “dismal safety record”.
This is the latest threat to the bankrupt Northern California utility, which is potentially on the hook for more than $30 billion in liabilities for its role in a series of deadly wildfires in its service area. It is also the latest sign that the utility business model is in crisis in the United States.
The filing comes nearly two months into a the latest phase of an investigation into PG&E’s “current corporate governance, structure and operations” to determine whether it can safely supply electricity and gas to customers, but which also openly questioned whether breaking up or municipalizing the utility would be a better option for the state.
This follows not only an estimated 86 deaths from the Camp Fire in Northern California alone, but also a criminal conviction for both violating safety laws and obstructing justice related to its role in the 2010 San Bruno gas explosion, which killed eight people.
CPUC is not the only entity to draw a connection between the two events, and a federal judge overseeing the utility’s probation for the San Bruno incident said that the utility has violated its probation and that if he did not take action, there was a risk that PG&E would “kill more people” by starting additional fires.
The CCAs also seized on this problem, noting that “the status quo for providing electric utility service in Northern California is no longer tenable in light of PG&E’s deplorable safety record”.
PG&E for its part has says that it has been working for the past several years to improve its safety culture, but that “we recognize we must do more to live up to that responsibility”. The utility further notes that no more than five of its current directors intend to stand for re-election, and that it welcomes guidance from CPUC as to how it can further develop safety and oversight processes.
However, what the CCAs are calling for goes well beyond replacing directors.
CCAs to take over
The seven CCAs who filed yesterday had specific proposals for future governance after PG&E is removed from retail generation, focused on putting operations under local control through “a variety of local governance models”. Their three bullet points on this topic:
- Put financial stewardship, responsibility and control over programs such as demand response, energy efficiency and transportation electrification under local control.
- Provide communities the opportunity and authority to take affordable clean energy action by ensuring communities have the unhindered ability to proactively pursue full community control of retail generation services through a variety of local governance models. The Commission should work collaboratively with local governments to remove barriers to pursuing full municipalization of the electric system in communities where there is interest.
- Transform California’s regulatory and legislative framework to concentrate on safety while utilizing existing locally governed, state, or non-profit platforms whenever possible, or new state or non-profit entities, if necessary, to enhance transparency, accountability and reliability.
In terms of future models, the CCAs appear to be open, stating that CPUC should work with local governments to facilitate “CCA, municipal utility, co-op and other locally controlled and governed entity formation and expansion” for the “wires” side of PG&E’s business.
This is one of the boldest moves to date by CCAs, but in the words of the CCAs, this would “simply be an extension of current trends”, as CCAs already serve 46% of the retail electric load in PG&E’s service area, and with more CCAs being proposed.
Consequences for renewable energy
While it is far too early to tell what such a change would mean for renewable energy, there are several trends to consider. The first is that in California CCAs have been more aggressive in procuring renewable energy than the investor-owned utilities; in fact many were formed with the specific purpose of accelerating the transition to renewable energy.
And while utilities have argued that they are needed as credit-worth off-takers for renewable energy projects, the signing of a power contract with a 200 MWac solar project by Peninsula Clean Energy (PCE), one of the petitioners, puts that in doubt.
For existing contracts, the picture may not be as bright. A number of developers and asset owners are already in a deep, multi-agency legal fight to ensure that PG&E honor its existing contracts in its bankruptcy, and PG&E appears to be doing everything in its power to make sure that the bankruptcy court has the option of modifying or nullifying those contracts if need be.
However, there may be more opportunities for rooftop solar and energy storage, as PG&E – like nearly all U.S. utilities – has pushed to dismantle retail rate net metering and shift to rate structures that would discourage wider deployment of distributed solar.
A bigger fight
While PG&E is in the cross-hairs of CPUC and the CCAs, the potential for up-ending the utility business model is hardly limited to Northern California. The CCAs recognize this in their filing, stating that the state’s other investor-owned utilities face similar safety problems, and that “no (investor-owned utility) seems to have identified a solution for avoiding further un-necessary deaths and property damage”.
This is summed up in one pithy statement in the filing:
this is not just a PG&E management problem, but a state-wide structural problem as well
And while the problem in California is clearly safety, in other utility service areas reliability may be the issue. As previously covered by pv magazine USA, the reliability of electricity service in the United States as measured by frequency and duration of outages is getting worse due to extreme weather events, and climate change is expected to bring more of these.
Furthermore most service interruptions are caused by problems with power lines, and as such the preference of U.S. utilities for large, centralized generation – driven by cost of service regulation that incentivizes investment in infrastructure – may make the current utility business model untenable under the realities of climate change and the necessity of reliable electricity as a basis for our civilization.
Update: This article was updated at 4:35 PM on February 14 to include a response by PG&E to the allegations regarding its safety record.
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We should not forget that this is the second time PG&E has used the bankruptcy court to reduce it’s debt. In 2001 the CA “energy crisis” cost the state tens of billions and its 4.8 million electricity customers $6.2 billion to $8.2 billion in above-market prices through 2012. That worked out to about $1,300 to $1,700 per customer.
I’m not sure if a CCA takeover is the way to go, but this should be the end for PG&E. At this point bankruptcy is not an unfortunate option of last resort, its their business model.
PG&E would like nothing more than to get out of the de-regulated electric part of their business….the “Generation” Line item on your PG&E bill. The same line item that determines which CCA, or if PG&E; sells the customer the electric commodity, or the “electrons”.
This is where PG&E gets stuck with uneconomic “green contracts” due to State mandated Green Targets, which in turn they are force to pass those costs onto their customers. Remember, this Line item charge is a de-regulated component of the total bill.
The rest of your PG&E bill is regulated, which means is under the jurisdiction of the CPUC. The same CPUC that sets rates and provides PG&E an authorized rate of return.
This regulated arena provides PG&E and its investors some security and oversight. Why wouldn’t PG&E want to get out of the de-regulated retail part of their business?
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