California’s biggest utilities are losing their monopolies — is that a good thing?
San Diego’s decision to go into the power business was the last straw.
Ever since the city’s announcement last year, San Diego Gas & Electric has been telling state lawmakers it wants out of the business of buying and selling electricity. That may sound like a radical plan for a monopoly utility with nearly 1.5 million customers and annual profits that regularly exceed $500 million.
But given the state’s rapidly shifting energy landscape, it might actually make sense.
California’s three big investor-owned utilities - Southern California Edison and Pacific Gas & Electric are the other two - are losing a growing number of customers to government-run power providers called community choice aggregators, or CCAs. There’s a good chance the monopoly utilities will lose the vast majority of their energy sales to CCAs and other energy providers over the next few years.
And the utilities don’t profit from energy sales, anyway - they’re allowed to charge customers only what they paid for electricity on the market.
But the investor-owned utilities do earn a regulated profit when they invest in infrastructure projects, such as building and operating the poles and wires of the power grid, or installing electric vehicle charging stations. So why not stop signing contracts for electricity supply and become infrastructure companies exclusively?
“We don’t think we should be signing big, long-term contracts for customers that have made a conscious choice to be served by a different” power provider, said Kendall Helm, SDG&E’s vice president of energy supply. “We think our primary role and our primary value is in the safe and reliable delivery of that power.”
Edison and PG&E, whose poles and wires span most of the state, haven’t suggested they’re ready to stop buying and selling power. But they face the same conundrum as SDG&E: Dozens of cities and counties across their service territories are choosing to become their own energy providers.
California had 19 community choice providers serving 2.6 million homes and businesses last year. Nearly 1 million homes in Los Angeles and Ventura counties are being enrolled this month in Clean Power Alliance, the state’s biggest CCA.
Advocates say CCAs empower local officials to set electricity rates for their communities and to increase the use of climate-friendly energy sources such as solar and wind power more quickly than the big utilities.
But the erosion of California’s century-old utility monopolies has alarmed some regulators. They worry that without new safeguards, the shift from a handful of big utilities to a decentralized system with dozens of energy providers could have unintended consequences - possibly including a repeat of the state’s early-2000s energy crisis, when a failed experiment in deregulation led to rolling power outages and ballooning electricity costs.
One of the leading community choice skeptics is Michael Picker, president of the California Public Utilities Commission and a former renewable energy adviser to then-Gov. Jerry Brown. Picker has spearheaded a series of reports outlining potential risks posed by the rise of alternatives to the big utilities, not just CCAs but also rooftop solar, home battery systems and companies buying energy through a limited competitive market.
Picker has two main concerns.
The first is that non-utility energy providers don’t have as long a track record as the utilities, and aren’t regulated by the PUC as stringently. What would happen, Picker has asked repeatedly, if one or more of the CCAs failed? Who would be responsible for keeping the lights on for the stranded customers?
Those questions are especially potent because unlike in some other states, lawmakers here haven’t designated a “provider of last resort” that would serve homes and businesses whose electricity provider fails.
Right now, the three big utilities play that role by default in their service territories because they’re obligated to take back customers who decide to leave a CCA. But in a world where Edison, PG&E and SDG&E mostly or entirely get out of the electricity sales business, it may no longer be feasible for them to provide that backstop.
Picker told attendees at a conference in Los Angeles last week that California faces the same challenges it dealt with in the last energy crisis, including fragmented decision-making and poorly coordinated electricity purchasing, and doesn’t have a plan for what to do if a new energy provider can no longer serve customers.
“There isn’t a crisis today. But we have de facto deregulation, and without a clear plan in place, we can slide into the problems we had in the past,” Picker said in a video recorded for the VerdeXchange conference.