California regulators working to avert repeat of 2001 energy crisis
California’s success in spurring an abundance of renewable energy, coupled with increased customer choice and competition, is rapidly fracturing the state’s retail electricity market.
Regulators, seeing the risk, are now trying to develop a long-term plan to prevent the massive flight from traditional investor-owned utilities from causing another energy crisis like the state suffered in 2001 after an initially flawed effort to deregulate the industry.
“More so than ever customers are again leaving utilities and finding other ways to procure electricity,” said Michael Picker, president of the California Public Utilities Commission in a recent column in the Sacramento Bee.
“They’re getting it from rooftop solar panels, local agencies known as Community Choice Aggregators or from private electric re-sellers called direct access providers. Large industrial customers are buying power directly from dedicated generators – sometimes a distant wind farm or solar plant.”
“Fewer customers are getting power from the traditional large utilities,” he added. “Central decision-making that we depend on to keep the electric grid reliable and affordable for everyone has been splintering, with no protection if new providers fail and strand customers.”
“If California policy makers are not careful, we could drift slowly back into another predicament like the energy crisis of 2001,” Picker said.
In 2000 and 2001, price caps imposed under deregulation and market manipulation by energy trader Enron Corp. resulted in electricity shortages, rolling blackouts and exorbitant market prices. Pacific Gas & Electric ultimately filed for bankruptcy and Southern California Edison suffered near bankruptcy.
Picker’s remarks coincided with a report issued by the commission’s Policy and Planning Division entitled “California Customer Choice: An Evaluation of Regulatory Framework Options for an Evolving Electricity Market.”
The report follows a prediction the agency made a year ago that, while up to 25 percent of utilities’ retail load was then being served by alternate suppliers, that figure could increase to more than 85 percent by the middle of the next decade.
Central to the issue is the rapid rise of Community Choice Aggregation (CCA), an initiative in California that allows cities and counties to buy or generate electricity for their residents, switching them away from the investor-owned utility.
One challenge the state will face is how to make up for the 2,200 megawatts of carbon-free electricity the state will lose when Pacific Gas & Electric closes the Diablo Canyon nuclear power plant in 2025, the last operating nuclear power plant in the state.
For perspective, the report explores the recent history of customer choice efforts in New York, Texas, Illinois and Great Britain. The commission will use report as a basis for upcoming discussions on how the state’s policy makers should respond to the changing market.
One of the big issues the commission is wrestling with at the moment is how to reimburse the utilities for the long-term energy supplies they’ve already contracted to serve the now-departing customers. Without compensation, those costs are shifted onto the customers who remain with the utility. State law allows for utilities to be paid, but the parties disagree on a fair amount.
The report lists many of the questions the regulators and legislators will have to answer if they are to avert another crisis, maintain a safe, reliable and affordable system for customers, meet the state’s renewable energy goals and make sure customers are protected from unscrupulous operators in the marketplace.
