Timely Warning from California's Public Utilities Commission

Almost a quarter century has passed since a staff report for the California Public Utilities Commission (CPUC) paved the way for an ill-fated electricity restructuring initiative that led to chaos and blackouts in 2000-2001, leaving painful memories that are still vivid for many. A new CPUC report issued today in draft form reflects on that history and asks pointed questions about whether California is risking a repeat performance.

Let’s hope not.

The most important lines in the report may well be those in a cover letter from CPUC President Michael Picker: “In the last deregulation, we had a plan, however flawed. Now, we are deregulating electric markets through dozens of different decisions and legislative actions, but we do not have a plan. If we are not careful, we can drift into another crisis.”.

As a member of an advisory group for the CPUC staff authors, I share President Picker’s urgent sense of concern, although I’d frame the problem a bit differently: I don’t think California (then or now) was really “deregulating electric markets.” Electricity markets are robust here and across the nation, with numerous opportunities for generators to bid against each other (regardless of ownership), under the supervision of both federal and state regulators. Only the power plants with the lowest operating costs get paid to create the continuous power supply needed to serve America’s homes and businesses, and that isn’t changing. President Picker is really referring to a trend toward decentralized responsibility for competitive long-term procurement of the new electricity resources that are essential to maintain reliable and affordable service. In most of the nation, planning and contracting for such resources is a core responsibility of publicly regulated electric utilities. But for the second time in the past quarter century, California is trying something quite different.

In California’s first electric system restructuring, launched under the banner of “customer choice,” we tried shifting resource choices to individual households and businesses through a process called “retail competition,” which failed dismally (few people were interested in assuming that responsibility, and system reliability was an early casualty when resource investment stalled, forcing a prompt legislative reinstatement of utilities in their traditional procurement roles).

This time around, fragmentation is occurring in other ways. Many municipalities and counties are choosing to make electric resource procurement choices for their citizens, as allowed under California law and often as a way to experiment with innovative ways of providing service to constituents while achieving their climate and equity goals. There are potential benefits from exploring new programs and approaches, but as the CPUC report alerts the legislature and the public, these entities face a host of challenges ranging from ensuring affordable service to low-income communities to creating coordinated systems of reliability assurance and making sustained progress in achieving California’s climate and clean energy goals.

If an increasingly fragmented system falls short, as the CPUC indicates in the release accompanying the new report, “we could drift slowly back into another predicament like the energy crisis of 2001.”  Or maybe not so slowly.

Note: A copy of the paper, frequently asked questions, and information on the webinar are available on the CPUC’s Customer Choice Project webpage at www.cpuc.ca.gov/customerchoice.  The CPUC will take public comment on the paper through June 4 via customerchoice@cpuc.ca.gov