Community Choice Groups Push for PG&E to Leave the Power Generation Business

Source: GreenTech Media

A broad coalition of community energy choice groups from across Northern California called last week for a sweeping restructuring of Pacific Gas & Electric, in the wake of the utility’s unfolding bankruptcy. The groups argue that the state’s largest utility should get out of the retail energy business altogether, and instead focus on the distribution and transmission of power.

The California Community Choice Association (CalCCA) and community-choice aggregators (CCAs) pressed their case in a new filing with the California Public Utilities Commission. They claim that CCAs should take over the role from the utility in generating and procuring electricity for communities, and that PG&E should transform into a “wires-only” company.

The association argues that the ownership and maintenance of the power grid and the natural-gas system is the utility’s core business from a shareholder perspective. “That’s where they derive the vast majority of their revenues and profits,” said Nick Chaset, a CalCCA board member.

“This restructuring is important as it allows for PG&E to be focused on the safety and reliability of that infrastructure,” Chaset said. “The reality is today that PG&E spends a considerable amount of time and resources on the provision of energy supply. I think that in light of all the challenges that they have had and continue to have dealing with the safe operations of their system, the time is right now for them to focus on those critical tasks.”

PG&E is saddled with debt, and its liability from sparking wildfires could soar into the billions of dollars. The utility recently filed for bankruptcy protection, which has sparked a major debate over PG&E’s future.

As a decoupled utility, PG&E’s profits are separated from the amount of energy it sells, and it makes most of its money through a regulated rate of return on capital investments, such as building infrastructure projects and software for its customers. That means the utility shouldn’t be entirely averse to becoming a poles-and-wires company.

Other utilities in California are exploring this option. The San Diego Gas & Electric is leading the charge for utilities wanting to transform into transmission and distribution businesses. Recognizing that CCA programs are taking root in Southern California, SDG&E is searching for a pathway out of power generation.

PG&E has indicated that it is also open to the idea, but with reservations.

PG&E makes its case

Removing PG&E from the power generation business will likely require passing state legislation, but the California Public Utilities Commission could move the process forward by making it easier for CCAs to form and to operate. Community-choice agencies already serve more than 2.4 million of the 5.4 million customers in PG&E’s service territory, with more growth by the CCAs planned in 2019.

A spokesperson for the utility wouldn’t comment on the prospect of becoming a wires-only entity. Instead, the representative referred to a separate brief PG&E filed with state regulators, in which the utility said it “supports consideration” of providing only transmission and distribution services, but warned that the municipalities and CCAs taking over its generation services must prove that they can effectively manage the task.

“Given that generation services carry unique risks, the potential benefit of a wires-only company would be that, by reducing the total number of risks managed by PG&E, it could lead to better management of the remaining risks,” PG&E wrote. “The Commission would need confidence that the entity or entities assuming operations would manage risk as well or better, or overall public safety risk would not improve.”

In its comments, PG&E suggests it is better prepared to handle the risks associated with generating power, noting that the wires-only proposal would “pose several challenges and take considerable time to implement.” One challenge is that PG&E would no longer have an obligation to be the energy supplier of last resort, and would no longer be responsible for procuring power for customers should their new provider exit the market for any reason. This aspect alone prompts a lot of questions.

Additionally, the utility said that “there are no direct, public safety risks” associated with its operations for procuring and generating energy.

For their part, the aggregators cast themselves as vehicles for the speedy development of technological innovation and climate policy, and they say they are in better position to quickly act on this issues than PG&E. They also say that they are better equipped to meet the specific demands of communities and should be given the opportunity to aggressively pursue local control of retail power generation.

CalCCA criticized PG&E for what the group calls a “dismal safety record over the past 20 years.”

“Clearly, the status quo for providing electric utility service in Northern California is no longer tenable in light of PG&E’s deplorable safety record. As PG&E moves into yet another bankruptcy, the Joint CCAs strongly endorse movement toward more alternatives for safe, reliable, and cost-effective electric power supply to Californians through locally controlled public agencies.”

Chaset, who is also CEO of East Bay Community Energy, agrees that PG&E’s retail and generation businesses do not pose any risks to the public.

“That’s exactly the point that we’re making,” he said. “There are considerable resources that PG&E as an organization is expending on things like operating and procuring energy, or operating solar plants, and that work does not contribute to their overall operating operational safety. Our view is that they should be focused first and foremost on the safe operations of their grid.”

“Having a retail generation business does not contribute to that,” added Chaset.

“The core choice”

Community-choice aggregators already service 46 percent of the retail electric customer load in PG&E’s territory. The recently filed comments represent a push for greater control over the power business and its financing across the state. The documents were signed by the East Bay Community Energy, Peninsula Clean Energy Authority, Pioneer Community Energy, Silicon Valley Clean Energy, Sonoma Clean Power, Valley Clean Energy Alliance, and the City of San Jose.

The groups are also asking for local control over a wide range of energy programs from demand response, to energy efficiency measures, to electric vehicle initiatives. Power generation aside, it would be a big lift for the aggregators to assume control of the teams of people that manage these programs and interact with customers and the software that allow them to operate.

If the groups take over the power generation business from PG&E, it could undercut a key argument for community-choice aggregation. CCAs have long argued that the programs bring healthy competition to the power utilities, which otherwise operate as regulated monopolies.

But Chaset said that community choice isn’t only about competition; it’s about local control over energy decision-making.

“The core choice remains,” he said. “And that core choice is the one the community makes every month at the board meeting, where a group of local elected officials meet to decide on key operational questions. ‘How much renewable energy do you want to procure? What kind of local investments do you want to make? What should the rates be?’ And that will remain.”