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California Energy Market Reform

The California Public Utilities Commission has issued the final version of a new report on the state of the California electric market. The “California Customer Choice Report” sets the stage for a conversation among state energy policy decision-makers and stakeholders about the need to develop a plan to address the current shift in the evolving electricity market and the next steps in managing this transition. The report begins with a review of market restructuring in the state, laying out the history as follows: In the late 1990s, California deregulated the electric industry, allowing customers to choose their power supplier. But in 2000 and 2001, the new electric system collapsed, saddling customers with high costs and rolling outages. The California Legislature reset the large, regulated utilities as the dominant providers of electric service, although the utilities no longer owned most power generators.

According to the report, customers are once again departing from the utilities as providers of their electricity, now obtaining power from rooftop solar panels, from local agencies called Community Choice Aggregators (CCAs), or from private electric re-sellers called Direct Access providers. In addition, large industrial customers are buying power directly from renewable generators, sometimes serving several locations from a distant wind farm or solar plant. Speaking to the need for an update to the regulatory framework in the state, the commission notes that fewer and fewer customers are getting power from the traditional large regional utilities, and the central decision making relied upon by regulators for keeping the grid reliable, safe and affordable is splintering, instead becoming the task of dozens of decision-makers.

The commission found that the community choice aggregation movement, proliferation of rooftop solar along with other customer installed resources, and the continued digitization of the electric grid have transformed a once vertically-integrated industry into one with increasing fragmented responsibility for resource procurement and resource adequacy. The commission also concludes that while increased competition and energy choices for customers have largely been viewed as positive, the status quo retail electric service model is being “up-ended,” and it must now review long-held assumptions in its regulatory framework including an examination of the role of: (1) the regulated investor-owned utility at the center of this system; (2) new market entrants such as CCAs; and (3) technological developments that allow users to have more individual control of their energy supply. Re California Customer Choice, Aug. 7, 2018 (Cal.P.U.C.).

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