California PUC Rejects Expansion of Direct Access

By June 10, 2021 News

The California Public Utility Commission issued a proposed decision regarding the potential expansion of Direct Access, which the PUC was directed to study under Senate Bill 237 passed by the California legislature in 2018. Direct Access is the program that enables commercial and industrial customers in California to purchase electricity in the competitive market rather than from the investor owned utilities (IOUs) and community choice aggregators (CCAs). The Direct Access program is capped at certain amount of customer load, and currently there is little available space under the cap for non-Direct Access customers to enter the program. The proposed PUC decision calls for no increases to the Direct Access program, citing a variety of issues doing so could create in meeting the state’s greenhouse gas reduction grid reliability goals.  The decision is a firm rejection of the competitive power market in California.

SB 237 directed the PUC to study expansion of Direct Access to ensure it would be consistent with the GHG emission reduction goals, not adversely affect reliability, and that the expanded market would not lead to undue cost shifting between customers. The PUC’s report and proposed decision concluded the opposite, that expansion of DA was likely to increase GHG emissions, harm system reliability, and add cost burdens to customers who remained with IOUs and CCAs. The report pointed to ESPs (competitive electricity suppliers in California) as typically procuring less renewable energy to serve customers than IOUs and CCAs and relying more on non-source specific system power, which has a higher GHG emission factor. Additionally, the report pointed to ESPs typical practice of not entering into long term contracts for generation as a negative for system reliability if DA were to be expanded.

California is facing an acute shortage of generation resources, particularly those that are dispatchable and non-intermittent (i.e. not solar and wind). The state is set to lose approximately 3,300 MW of natural gas fired generation that utilitizes once-through cooling due to a state mandate to eliminate once-through cooling plants. Additionally, California’s lone remaining nuclear power plant, Diablo Canyon, is slated to retire in 2025 further depleting dispatchable generation resources. This loss of generation is combined with an outlook for electric load growth due to statewide initiatives to electrify automobiles and transportation infrastructure.  The state is forecasting a need for 7,500 MW of new generation by 2026. The PUC’s report on DA expansion pointed to ESPs tendency not to enter into long term contracts for generation as a significant impediment to getting the needed new generation built. The report even went as far as to point to the Texas winter storm Uri power crisis as an example of a competitive market being unable to ensure generation resource adequacy, while also highlighting California’s own reliability problems in the summer and fall of 2020.

The proposed decision is likely to be taken up at a June PUC meeting. It the recommendation is implemented, the Direct Access cap will remain unchanged with little space for additional customers to purchase competitively. The perspective in the report shows the current PUC’s clear preference for a largely regulated/non-competitive market as the preferred market structure for meeting California’s GHG reduction and system reliability goals.