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Proposed Calif. PUC Decision Would Reject Expansion Of Direct Access, Citing "Unacceptable Risk" To Reliability Goals

Says Cannot Ensure That Direct Access Expansion Would Not Increase GHG, Other Pollution

Cites Concerns About Viability Of Municipal Aggregations If Direct Access Expanded

May 17, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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A California PUC ALJ has issued a proposed decision concerning a review of expanding electricity direct access which would find that, "the Commission concludes that at this time, expansion of Direct Access to all non-residential customers would present an unacceptable risk to the state’s long-term reliability goals."

"Further, based on the current procurement practices of Direct Access providers, we are unable to ensure that expansion of Direct Access would not result in increased greenhouse gas emissions, criteria air pollutants, and toxic contaminants when compared to maintaining the current cap on Direct Access. Therefore, we cannot recommend expanding Direct Access at this time," the proposed decision states

The PUC was reviewing potential direct access expansion per SB 237

An earlier PUC Staff Report, from September 2020, had recommended expanding Direct Access at a rate of ten percent each year.

However, the proposed order cites two recent grid reliability events, including the Texas winter weather event, for not adopting the Staff recommendation, and rejecting an increase in direct access

"On August 14 and 15, 2020, the California Independent System Operator was forced to institute unplanned rotating electricity outages in California during an extreme heat wave in the western United States. The August 2020 rotating outages confirmed that the state’s reliability issues are acute and immediate; however, these challenges are also long-term and structural," the draft order states

"It is essential that the state’s grid be fully prepared and able to avoid outages resulting from insufficient resources. The February 2021 outages in Texas, where direct access providers serve all retail customers, further underscore the dangers of insufficient available generation resources. Texas and other states experienced a weather-related power crisis that led to extended power outages and skyrocketing energy prices. Although the root cause of the Texas outages is still under review, the damage to the health and safety of Texas residents, as well as the Texas economy, is evident. It is especially concerning because advocates of direct access in California have cited Texas as an example of a successful, fully-competitive retail market," the draft order states

"The Commission’s Integrated Resource Planning (IRP) proceeding is charged with forecasting California’s future generation needs so that the state can continue to reduce greenhouse gas emissions from the electricity sector while preventing reliability events. Currently, IRP forecasts that retirement of once-through-cooling plants as well as increased electric load from building electrification and transportation electrification will lead to capacity deficits. These capacity deficits could be significant and will require new generation resources to be built. This means that in the coming years load serving entities will need to invest in these new generation resources through long-term contracts to ensure grid reliability. Reopening Direct Access would significantly complicate the state’s near-term and long-term efforts to ensure grid reliability for all ratepayers if individual load serving entities lose load due to load migration and are unable to enter into long-term commitments for new generation," the draft order states

"The Commission views grid reliability as one of its top priorities. The Staff Report issued for comment in September 2020 recommended expanding Direct Access at a rate of ten percent each year. However, after considering the reliability events and the IRP forecasts for additional generation, the Commission is recommending against expansion at this time. Expanded direct access would result in further fragmentation of the market and raises serious electric system reliability concerns. These reliability concerns, coupled with Direct Access providers’ primary reliance on unspecified power sources, form the basis for the Commission’s recommendation against expansion of Direct Access," the draft order states

The draft order cites findings from a PUC Staff report as follows:

• Large-scale generation resources are needed because the state has a major capacity shortfall over the next decade. The CPUC has ordered 3300 MW of new generation to be built by 2023 and estimated that an additional 7500 MW is needed by 2026.

• The load migration that would be enabled by reopening Direct Access leaves all LSEs uncertain about future load, making it challenging for any LSE, including the CCAs and IOUs, to build the large-scale generation resources the state needs to ensure reliability in the future.

• While ESPs have recently begun to secure contracts for generation resources; ESPs’ lack of track record in building new generation resources, system reliability would be at increased risk if ESPs were to serve a significant portion of the states’ load.

• Except for a few notable exceptions, most ESPs’ procurement practice is to primarily rely on CAISO system power to meet all energy needs beyond their RPS requirements. The GHG emissions factor for CAISO system power is slightly higher than gas generation.

• If past procurement indicates future outcomes, then load migration from IOUs or CCAs to ESPs may lead a net decline in RPS procurement, relative to maintaining the current cap on Direct Access, which may increase GHG emissions and increase criteria air pollutants and toxic air contaminants.

• Shortfall in generation capacity drives up the cost of energy for all customers adversely impacting all ratepayers.

"We underscore here that the Commission has an obligation to protect customers and ensure Californians’ access to safe and reliable utility infrastructure and services at fair and reasonable rates. To meet this statutory obligation, the Commission must ensure system reliability before considering enhancements to customer choice. In the past two decades since deregulation began, meeting the state’s resource needs has become increasingly complicated with market fragmentation and high penetration of renewables. Although the state has an RA program with local, system and flex capacity compliance requirements, California is still facing a major reliability challenge with the current level of market fragmentation, which includes nearly 40 LSEs serving load in the CAISO territory. The RA proceeding is currently exploring significant structural changes and refinements to the RA program to ensure ratepayer value and to secure a generation fleet to meet California’s needs, in part due to this fragmentation," the draft order states

"[W]e have determined that ESPs do not have a track record of relying on long-term contracts to meet a significant proportion of their energy needs. The Final Staff Report illustrates the ESPs’ current procurement practices, showing that contracted energy comprises a small fraction of their current procurement. The Commission does not believe expanding customer choice at this time justifies enabling a significant portion of the state’s load to be served by the type of LSE that has the least amount of experience procuring new generation resources, particularly in the current situation when a high level of new capacity investment is critical to meeting system needs," the proposed decision states

"Furthermore, TURN and CalCCA have also raised concerns regarding the ability of CCAs to remain financially viable and maintain their own long-term contracts if there is a significant risk that load will migrate to Direct Access following expansion," the draft order states

"If Direct Access is reopened, CCAs could lose a significant percentage of load, which could undermine the long-term contracts that CCAs have already entered into and make it difficult for CCAs to secure financing for future long-term contracts to meet reliability needs. Given that the reliability of California’s energy future depends on LSEs contracting to build over significant volumes of new resources, and given that CCAs are currently responsible for at least half of this capacity, the risk presented by expanded Direct Access is unacceptable at this time," the draft order states

The draft order states, "The Direct Access Parties state that they intend to comply with the new RPS obligation to secure at least 65 percent of their RPS resources through long-term contracts by 2024. This is the deadline pursuant to statute. However, the IOUs and CCAs have consistently procured RPS resources in excess of state requirements. Thus, allowing additional load to migrate to Direct Access would likely result in increased GHG emissions compared to the status quo."

R. 19-03-009

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