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Calif. PUC Adopts Recommendation To Legislature That Direct Access Not Be Expanded

Says Expansion Of Direct Access Presents "Unacceptable Risk" To Reliability Goals

Says Expansion Of Direct Access Would Likely Increase GHG Emissions

June 24, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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The California PUC adopted a proposed decision and recommended to the Legislature that the Legislature not expand Direct Access transactions

The PUC was reviewing potential direct access expansion, including potentially to all non-residential customers, per SB 237

The PUC substantially adopted a previously reported proposed order concerning the matter

In brief, the PUC, "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 PUC stated

In making its determination, the PUC cited recent reliability events in California and Texas, and concerns about load migration and the ability to support new generation investment in a retail choice environment

The PUC stated, "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. We do not attribute these reliability events to ESPs or any other specific group of retail providers. However, the events raise concerns about grid reliability in a fragmented retail market. This decision finds that expansion of Direct Access would further fragment the market, which in turn could exacerbate the planning and related activities necessary to ensure grid reliability."

"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 PUC stated

"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 PUC stated

The PUC described "unspecified system power" as, "power purchased by LSEs on CAISO day ahead or real-time markets that cannot be tied to specific generation source. Reliance on unspecified system power, which is generally cheaper and requires no long-term contracting, has been a source of competitive advantage for ESPs by allowing them to avoid higher costs and commitments of long-term contracts."

The PUC stated, "ESPs’ current procurement practices may indicate that load migration from IOUs or CCAs to ESPs could lead to a net decline in RPS procurement relative to the current forecast, which could lead to a net reduction in GHG emission reductions compared to not reopening Direct Access. The Staff Report relies on the ESPs’ 2019 PCL to determine that approximately 70 percent of the ESPs’ energy resource are from unspecified power. California Air Resources Board has determined that unspecified power has a GHG emissions content that is slightly higher than natural gas generation."

"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," the PUC stated

"We conclude that we cannot find that reopening Direct Access would be consistent with the state’s GHG emission reduction goals and therefore cannot recommend reopening at this time," the PUC said

Rulemaking 19-03-009

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