Lifting the Suspension: The Status of Direct Access in California

Direct Access (DA) was introduced in California in 1998 during the U.S. energy industry deregulation. Participating consumers purchased their electricity competitively at a rate determined with their selected Energy Service Provider (ESP). The ESP provided the energy commodity, while the local utility transported and delivered the electricity to the customer’s meter.

Exercising this choice, DA customers received diversity in energy cost and supply, including access to a higher content of renewable energy in their power mix.

During the California energy crisis in 2000-2001, the California Public Utilities Commission (CPUC) assigned the Department of Water Resources (DWR) to negotiate new long-term contracts and stabilize electricity prices. In order to supply the DWR with a stable customer base to recover its cost, the CPUC suspended DA until the DWR no longer procured power for retail end-users.

Since that time, DA has been limited to a “grandfathered” class of electricity consumers who were participating in the program at the time of the September 2001 suspension. Prior to the suspension, more than 200 ESP’s provided alternative electricity service to approximately 16% of California’s customer base. After the suspension, the number of ESP’s dropped to 15. DA customers now constitute approximately 10% of California’s customer base.

Critics of DA claimed that even a deregulated market wasn’t a truly competitive market because:

• The transmission system was limited and in constrained places, generators that were already connected held an advantage in the market.
• There needed to be a larger reserve with more generators on the market to create healthy competition.

Supporters of DA note that several big steps have been made in state since the energy crisis, including:

• The main constraint in the transmission system (between Northern and Southern California) was upgraded in 2005, as part of Governor Schwarzenegger’s Energy Plan.
• In 2006, the CPUC established the Resource Adequacy (RA) compliance procedures. RA requires all Load Serving Entities (LSE), made up of utilities and ESP’s, to acquire 15% extra capacity beyond their ability to meet their maximum demand. Each LSE reports their RA compliance on a monthly basis. This current compliance will establish a future competitive environment in the emerging capacity market.

In December 2006, a petition was filed by the Alliance for Retail Energy Markets with the CPUC to consider lifting the suspension on DA. The alliance is made up of energy service providers and the petition is supported by a variety of customers, including schools, universities, retailers, restaurants and manufacturing/electrical suppliers from across the state.

The petition claims that the conditions that existed to suspend DA no longer apply, emphasizing the fact that the DWR no longer procures power contracts and that the market proves to be working. They advocate that the DA community benefits from the opportunity for best price and wider access to renewable power.

The Petitioners request that the CPUC consider reopening DA by January of 2008.

“An open retail market allows regular people to exercise choices as to the source of their electricity and allows those same regular folks to decide how much of their electricity should come from renewable sources,” says Norm Plotkin, executive director of AReM.

“Under the current regime, access to renewable energy is invisible to most Californians and those who don’t have a grandfathered customer choice contract may not contract for higher levels of renewables than the amount that their utility is required to procure on their behalf—20 percent,” Plotkins continued. “If we are to empower Californians to take an active, personal role in the benefits of renewable energy—fuel diversity, reduced greenhouse gas emission, etc…—we must give them a means to achieve this desired end, and that means is customer choice.”

In a recent response to the petition, CPUC has agreed to consider the possibility of lifting the suspension. Due to procedural requirements, the deliberation will take place methodically, in three phases, with the final phase scheduled for the winter of 2008-2009.

The California Retailers Association also avidly supports DA being reopened.

“Choice, or direct access as it is referred to, provides innovation and management opportunities that will translate into lower costs for goods,” notes California Retailers Association president, Bill Dombrowski. “The problem today is that some retailers have it, but because of the suspension, others who want to exercise choice can’t have access to the same benefits. Allowing all retailers to have the same low cost electricity options is a matter of commercial fairness.”

In the meantime, the majority of the state’s electricity customers receive their power through regulated utilities, with the average aggregate power content shown below.

 

 

 Source: California Energy Commission

Last year, nearly half of California’s gross power mix came from natural gas. According to a recent report from the Governor’s office, this dependence is growing at a rate that will exceed traditional natural gas sources.

In 2006, approximately 11% of California’s electricity came from renewable sources (biomass, geothermal, small hydro, wind and solar). To meet its RPS goals, the state must increase the amount of electricity that comes from renewable energy to 20% by the year 2017.

Direct Access customers can opt for even higher amounts of renewables in their residential/commercial portfolio, up to 100%, often at a cost competitive to what they currently pay with their utility.

Currently 18 states allow for customer choice in their electricity provider. California is the only state to suspend the choice. Californians can monitor the status of Direct Access on CPUC’s website:and determine their eligibility status by contacting their local utility.

Rebecca Meadows received her degree in Mechanical Engineering from the University of Michigan in 1993. She later worked as a consultant, training business managers in the effective use of statistics and went on to co-write a book summarizing her work in the field. Currently, in her work for 3 Phases Renewables, Rebecca plays a key role in researching and facilitating new accounts in distributed solar and wind generation.

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