Will the California electricity market open? Is it already?

Photo "California Coastline" courtesy of the U.S. Library of Congress

What building operators should know about the changing energy market structure in California.

Fifteen years ago PG&E filed for Chapter 11 bankruptcy, its balance sheet a casualty of a squeeze between fixed retail rates and escalating and illegally manipulated wholesale power prices. Since then, retail choice has always been accompanied by the words “Enron” and “debacle.”

That may be changing.

Following podcast comments a few months ago from leading Commissioner Michael Picker, a CPUC en banc hearing has been proposed for mid May in Sacramento. Will this finally pave the path to a fully open California electricity market? Time will tell, but there are some telling trends that will drive a different conversation than twenty years ago when the markets began opening.

First, the elephant in the room. Community Choice Aggregation (CCA) is already shifting the landscape by providing default generation services for select municipalities. 32 programs are developing, with six programs up and running, and 2017 marks the biggest load departures as the massive Peninsula Clean Energy and Silicon Valley Clean Energy programs turn active. Final numbers will trickle in this year, but most analysts and PG&E’s forecast expect over 85% of the load to depart in these areas.

Secondly, the distributed energy revolution continues to chip away at load in strange and interesting ways. California has over half a million solar roofs. Energy efficiency and code improvements continue to drop load. Our retiring nuclear plants are being replaced by solar panels and batteries. The load of today has changed and is dynamic, multidirectional and distributed.

The collision of CCA and DER trends leaves us in a situation where by the CPUC’s own estimates, by 2025, 80% of customers will receive some type of electricity service from an alternative source or provider. And part of that forecast is rethinking whether the current policy restriction even makes sense in this new world.

For example, consider explaining the following Californian Energy policies to your whip smart third grader:

  • You can’t buy power from a wind farm, but you can install your own wind turbine.
  • Your city can sell you electricity from a local solar farm, but the same solar farm can’t sell to you.
  • You can’t buy electric service from a natural gas generator (730 lbs CO2 per MWh), but the state will subsidize installation of your own natural gas fuel cell (884 lbs CO2 per MWh).
  • You can buy gasoline from any gas station but your electric car’s energy must come from one provider.

Yeah, kind of hard to make sense of it all. Perhaps that’s why the en banc is timely.

Of course, you’re a busy building professional, so Gridium will attend and report back. Our advice, in the meantime:

  1. File your DA Election forms by June 12. This is a free lottery ticket into the highly restricted current direct access program. If your number happens to come up, you’ll immediately save 20% on your power bill.
  2. Think carefully about CCA enrollment. It may or may not be a good decision for you, but currently the savings are very modest compared to the risks. An open retail proceeding puts very thorny issues such as the PCIA charge in play and it might make even more sense to wait things out.
  3. Don’t make capital investments that rely on perpetual generation demand charges. About half the demand charge comes from generation components that existing retailers do not charge. If the market truly opens expect commercial rate options and demand charges to drop dramatically. If your building is considering batteries, make sure they work on approximately half the demand charge.
About Tom Arnold

Tom Arnold is co-founder and CEO of Gridium. Prior to Gridium, Tom Arnold was the Vice President of Energy Efficiency at EnerNOC, and cofounder at TerraPass. Tom has an MBA from the Wharton School of Business at the University of Pennsylvania and a BA in Economics from Dartmouth College. When he isn't thinking about the future of buildings, he enjoys riding his bike and chasing after his two daughters.

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